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STOXX 600 down 0.8%
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Financials top drag
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Fed minutes eyed
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U.S. futures tick lower
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V-SHAPED RECOVER IN EUROPEAN EQUITIES "IMPLAUSIBLE" FOR NOW - UBS (1134 GMT)
European equities need to pause for more data to validate the V-shaped recovery currently being priced by the market, according to UBS strategists, who consider such a recovery implausible for now. The STOXX 600 is up 9.2% this year to 460 points, not far off a one-year high on Feb. 16.
If the recent rally turns out not to be justified, the downside could be 12% to UBS's 410 target for the STOXX 600. One recent signal that the market is "running on fumes" is a U.S. senior loan officer survey that showed tightening lending standards and lower loan demand, the strategists wrote. "We think it is likely that European real-economy financial conditions are tightening just as fast now. In both regions, M2 money supply is now shrinking." They describe equities as being in the middle of a "regime change", from downturn to recovery, but that the current levels are towards the top end of such a range, which they pit as 410-460 for the STOXX 600.
Earnings weakness is what could drive equities lower going forward, and the U.S will lead the downturn, the UBS strategists add.
(Lucy Raitano)
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ONLY HALF THE STOXX YIELDS MORE THAN BONDS (1125 GMT)
The relentless surge in bond yields has made pursuing equity
income strategies somewhat more complicated.
And this stat by BofA Global Research is quite telling: only half of the STOXX 600 index yields more than local 10-year bonds, which is the lowest proportion since 2011. This means investors need to be more careful than before when it comes to their dividend picks. With that in mind, BofA has set up screens with high expected dividends. The first basket of 15 large cyclical stocks has a heavy representation (almost 50%) of banks such as Intesa Sanpaolo , BBVA , ING and NatWest . The second one, of defensive plays, features insurers like Swiss Re , along with utilities like Iberdrola , staples like Unilever and drugmakers like Novartis .
(Danilo Masoni)
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FAVOUR EUROPE OVER WALL STREET, BARCLAYS SAYS (1029 GMT)
Now that the earnings season in Europe is well past its peak
and it's almost established that the numbers weren't as bad as
many had feared, how should investors position, given that much
of the good news has arguably been priced in?
Barclays has looked into it to conclude that portfolio
managers should focus on relative value, which it believes
favours European equities over Wall Street, along with select
value/cyclicals and banking stocks.
"As upside to global equities feels constrained now, we
believe that EU equities score better than US ones on both
earnings and valuations metrics, while positioning is also on
their side." say Barclays strategists led by Emmanuel Cau.
"The region has been underweight in global portfolios for a
long time. However, with the recent narrowing in growth
prospects... and worries about European integration receding
somewhat, demand for European stocks is starting to pick up".
So, that's why Barclays is keeping an overweight Europe
versus the U.S.. However, even though the region should enjoy a
strong relative performance, the absolute upside looks limited.
Its STOXX 600 target in fact remains at 475 points,
which is just 2.4% above Monday's close.
(Danilo Masoni)
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A SEA OF RED AS MINERS DRAG (0917 GMT) European stocks are a sea of red this morning, with a few less-than-stellar results weighing on the pan-regional index. A drop in mining shares is not helping either.
Basic resources stocks are languishing near the bottom of the list, with the sector down 2.3%, weighed on by mining giants Glencore and Rio Tinto which are down 2.7% and 2.6% respectively. Real estate is also faring poorly, down 1.5%, while banks are down 1.3%.
Fresenius shares are down 5% while Fresenius Medical Care shares are 10.3% higher, as the market digests the German healthcare group's latest results and reshuffle.
BE Semiconductor shares meanwhile are rising 7.5% after results.
Media names are only sector just about bucking today's downward trend, trading 0.1% higher.
(Lucy Raitano)
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NOT IF OR WHEN BUT HOW FAST? (0752 GMT)
Is it really good news? Probably yes, probably not.
Economies from the United States to Germany to Britain are
showing an unexpected pick-up in business activity, but markets
are again giving a thumbs-down to these indicators.
Just as inflation once again becomes the biggest pain point
for investors after they conveniently put away such worries last
month, strong growth cements the case for higher interest rates.
Fed funds futures traders are now pricing for the Fed's
benchmark overnight interest rate to reach 5.36% in July and end
the year at 5.18%.
And financial markets now point to a 95% chance of an
increase in the Bank of England's official rate next month, up
from 90% early on Tuesday.
That is depressing the mood for equity traders.
Asian stock markets floated in a sea of red on Wednesday
following an ugly sell-off on Wall Street.
Ten-year U.S. Treasury yields rose to 3.966%, the highest
since November. The dollar and sterling strengthened on
expectations of further rate hikes.
Inflation data from Germany and Italy due later on Wednesday
will offer clues on price pressures.
In this risk-off environment, the stage is set for the
release of the minutes of the Fed's meeting from last week.
Markets will scrutinise it for signs on how high officials
project interest rates will go following recent data that showed
stronger-than-expected U.S. employment and consumer prices.
Political tensions are also heating up as President Joe
Biden and Russian President Vladimir Putin spar verbally,
presenting starkly different views of the world and the Ukraine
war.
China said on Wednesday that its top diplomat, Wang Yi, met
Russia's security chief and both sides agreed that peace and
stability in the Asia-Pacific region should be resolutely
upheld, and opposed the introduction of a Cold War "mentality".
On the corporate front, Bloomberg News reported that
sovereign wealth fund Abu Dhabi Investment Authority is among
the parties considering a bid for a 34% stake in Associated
British Ports that could be valued at about 2 billion pounds or
more.
And finally, consulting giant McKinsey & Co, which is known
for advising businesses on a variety of projects including
layoffs, plans to cut about 2,000 jobs, in one of its biggest
round of layoffs, Bloomberg News reported.
Key developments that could influence markets on Wednesday:
European economic data: German and Italian Jan inflation,
Germany Feb Ifo survey
European results: Iberdrola, Lloyds, Telefonica
U.S. results: eBay, Nvidia
U.S. Fed releases minutes from Jan meeting
(Anshuman Daga)
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EUROPEAN FUTURES HEAD LOWER (0734 GMT)
European futures are heading lower this morning, with those
on the STOXX 50 , DAX and FTSE all down
0.3%-0.4%. U.S. futures are up by a marginal 0.1%.
The day has already kicked off with the release of Germany's latest inflation, which showed a rise of 9.2% on the year in January and a month-on-month increase of 0.5%. Italy will follow suit with CPIs at 0900 GMT.
At the open, eyes will be on Lloyds , after the UK lender reported flat annual profit for 2022 on Wednesday. In more positive news, carmaker Stellantis said on Wednesday operating profit grew 17% in the second half of last year, and Europe's biggest utility Iberdrola expects net profit to grow this year.
Post-European close, traders will be pouring over newly
released minutes from the Federal Reserve's last meeting for
hints over how the central bank's tricky task is going.
(Lucy Raitano)
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