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STOXX 600 up 0.2%
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Energy, construction stocks outperform
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Wall Street futures soft
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Focus on U.S. PCE
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EASING SUPPLY CHAIN STRESSES OFFER INFLATION HOPE (1145 GMT)
Global supply chain bottlenecks, which were a major contributor to inflation increases in 2022, have now eased significantly, according to UBS, who wonder whether this might lead to disinflationary pressure.
A composite indicator of global supply chain stress created by the broker currently shows the lowest level of disruption since a brief period in 2019, and before that since 2013.
Delivery times are now significantly below their historical average and freight costs on China-U.S. shipping routes, key for global trade, are also below their historical average, though other routes are lagging, UBS said in a report published Friday.
This is a result of declining global manufacturing orders taking the pressure off shipping volumes, rebounding passenger air travel increasing cargo capacity, and a slowing in the pace at which companies are building up their inventories.
A year ago, supply chain problems caused costs for companies around the world to jump sharply, and were a major contributor to the inflation surge. U.S. consumer spending data due later today will provide the latest indicator about the state of inflation in the world's largest economy, though recent signs that price rises globally are proving sticker than had been hoped earlier in the year have hurt non U.S. currencies, and weighed on equities.
Nonetheless, UBS sees some signs of optimism in their supply chain data, even if they phrase it as a question.
"If supply chain stress was a source of inflation pressure, could an overshoot in the other direction presage disinflation pressure?" asks UBS.
Alun John
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ROLLS-ROYCE AND IAG: DIVERGENT PATHS (1049 GMT) Shares in jet-engine manufacturer Rolls-Royce and British Airways parent IAG tend to follow similar paths.
When BA planes fly, Rolls-Royce engines rack up the miles and the fortunes of the two companies often go hand-in-hand. But that correlation has been upended over the last two trading days with Rolls-Royce shares surging 30% for their biggest two-day jump since November 2020, while IAG shares have slumped, both after earnings.
While Rolls-Royce shareholders celebrated a sound beat for profit and cash-flow generation, IAG shareholders seemed disappointed by the firm's higher costs, currency headwinds and the speed at which it attempts to repair its balance sheet after a turbulent three years.
IAG's net debt remains "uncomfortably high," said Richard Hunter, head of markets at interactive investor. Hunter added that it seems unlikely that would materially reduce further in the coming year. Year-to-date both companies have performed well with Rolls-Royce notably outperforming after the recent jump with shares up almost 47%, compared to IAG's 26% gain.
But over a longer timeframe performance has disappointed. It's three years to the day since
Europe's first major COVID-related sell-off and shares in Rolls-Royce are down 37% while IAG are
down 62% in that timeframe.
Investors, like many of BA's passengers, will be hoping for sunnier climes.
(Samuel Indyk)
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POSITIVE START FOR STOXX (0858 GMT) Europe's STOXX 600 is rising for a second day and trading near last week's one-year high, ahead of more prices data in the form of U.S. personal consumption expenditures (PCE), the Fed's preferred inflation measure.
The pan-European benchmark is up 0.3%. Germany's DAX , France's CAC 40 and Britain's FTSE 100 are up 0.1%-0.3%. Swedish medical equipment maker Elekta tops the STOXX 600 after its third-quarter results beat estimates, while French auto parts supplier Valeo is down 5.5% and German chemicals firm BASF slumps 3.5% after earnings disappointed.
Meanwhile, Rolls-Royce shares are jumping for a second day after the company's turnaround strategy showed early signs of success, as profit and cash flow both beat forecasts.
Here's your opening snapshot:
(Samuel Indyk)
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EUROPE SET TO RISE (0732 GMT)
European shares are set to edge higher on Friday, underpinned by a late recovery on Wall
Street on Thursday, which ended a topsy-turvy day in the green and saw the S&P 500 snap a
four-day losing streak.
Euro STOXX 50 futures are up 0.33%, although U.S. equity futures are pointing to
slight losses at the opening bell later on.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan is off
1%, led by declines in China and Hong Kong.
Japan's Nikkei 225 outperforms other regional indices, gaining 1.3% after prospective new BOJ governor Kazuo Ueda said the central bank must maintain ultra-low interest rates, even as inflation hit a more than four-decade high.
In Europe, Credit Suisse will be one to watch at the open after the embattled bank said it will reduce their distribution as a result of market conditions in 2022, while German chemicals giant BASF plans to cut jobs and halt buybacks as it warned of a further decline in earnings.
(Samuel Indyk)
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KURODA 2.0 (0654 GMT)
Kazuo Ueda, who takes over as Bank of Japan governor in April, does not give the impression
of a man in a hurry.
His surprise nomination for the job sent markets into a tizz a couple of weeks back as
investors took the appointment of an outsider as a signal for change. Interest rate markets are
positioned for an end to yield curve control as a first step away from decades of super-easy
policy experiments in Japan.
Yet as he fronted his confirmation hearing before parliament on Friday, he sounded very much
like incumbent Haruhiko Kuroda. It will take "some time" to achieve desired inflation, he said.
"It's important to maintain monetary easing," he said.
Traders responded with relief and the Nikkei share average had its best session in a
month. Ten-year Japanese government bond futures rallied about 20 ticks. Cash bond
yields remained at their 0.5% ceiling. That could perhaps hold things until next week, when Tokyo CPI is due.
Inflation hit a four-decade high last month, Friday figures showed, and the Tokyo reading is a
reliable indicator so will be closely watched.
Meanwhile, investors were bracing for the release on Friday of the U.S. personal consumption
expenditures (PCE) price index for January, the Federal Reserve's preferred inflation measure.
The index is expected to be up 4.3% on a year earlier, compared with 4.4% the previous
month. A surprise could shake things up, though with U.S. rate expectations already ratcheting
higher through February a degree of stickiness is priced in.
Elsewhere the United Nations General Assembly overwhelmingly adopted a resolution marking
the anniversary of war in Ukraine and demanding Moscow pull out and stop the conflict. Fighting
raged on in Ukraine's east and south.
Key developments that could influence markets on Thursday:
- German GDP
- UK consumer confidence
- G20 finance chiefs meeting (Bengaluru, India)
- U.S. PCE inflation (January)
- Fed's Mester, Jefferson, Collins and Waller speak
(Tom Westbrook)
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