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STOXX 600 up 1.2%
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Retail, tech lead gainers
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Wall Street futures higher
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MARKETS IN FEBRUARY: LIKE A SUNSET AT THE BEACH (1138 GMT) After a remarkably strong first month of the year, investors have had a tougher time navigating February. The S&P 500 - up over 6% in January - has dropped 2.6% month-to-date, MSCI's broadest index of Asian shares ex-Japan has fallen over 6%, while gains have slowed for Europe's major indices although most are higher in February.
Index and analytics provider Qontigo, which tracks investor sentiment via their proprietary ROOF scores, notes that sentiment took a hit last week, continuing a theme that has been evident since the start of the month.
"Of the six markets where sentiment was bullish at the start of February, only Australia remains so," Qontigo says.
"This weakening sentiment has dragged markets down from their January highs and induced profit-taking during February," Qontigo adds, although noting that Europe and the UK appear to be resisting the fall in investor sentiment so far.
Money markets are now pricing in a higher terminal rate for both the ECB and the Fed after strong inflation readings from Europe and the United States put into doubt expectations that the two central banks would pause raising interest rates in the first half of the year.
And the uncertainty about how high rates might go could hit investor sentiment further.
"Markets in February were like a sunset at the beach: once the sun drops, the sand chills quickly, leaving you standing there with clothing decisions that were good ten minutes ago, but no longer are," Qontigo writes.
"Sentiment has been fading all month (except in Japan and Australia), and investors may be experiencing the last few minutes of warmth before sentiment turns negative or even bearish." If sentiment does turn negative, or even bearish, Qontigo expects markets to fully give up those January gains, leaving investors rushing for risk-averse assets.
(Samuel Indyk)
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STILL HOPES FOR LOWER CORE INFLATION (1115 GMT) Some economists have supported the view that a fast decline in energy prices will translate into lower core inflation, as it has primarily been the product of post-Covid demand imbalances, supply bottlenecks and the energy shock. Davide Oneglia, lead analyst on the euro area and ECB at TS Lombard, is one of them and says he remains "sympathetic" to the idea, even if he acknowledges that core disinflation is unlikely to be a smooth process and is not slowing yet. Let's take a look at the economic backdrop. "Upside activity data surprises since the turn of the year have provided much-needed reassurance that the euro area (EA) will not fall into a deep recession this year," Oneglia says. "Leading indicators such as EA PMIs, German Ifo surveys and foreign manufacturing orders remain broadly consistent with a German recession and EA stagnation ahead," he adds. January's "euro area inflation data is liable to be interpreted as a sign that the outlook has deteriorated." Oneglia also warns against emphasising those numbers, "which are still subject to one-off factors such as new component weights and menu cost adjustments."
(Stefano Rebaudo)
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IS SEVEN YEARS BAD LUCK OVER FOR EUROPEAN TELCOS? (1039 GMT) Morgan Stanley equity analysts think 2023 could mark a "reversal of fortunes" for European telco stocks, which have been atypically outperforming in the recent rally.
Given their defensive nature, telco stocks usually outperform in a falling market, not the other way round.
"However, we note that this year is different. The broader stock market has returned +9% YTD, while telcos have returned +13%."
And the party ain't over yet.
MS equity analysts think there is scope for the STOXX telco index to continue this outperformance, marking a turnaround from historical underperformance of -50ppts over the last seven years. Why the turnaround in fortune? They point out improvements in four specific headwinds that have weighed on telco stocks in recent years.
Those four headwinds are; anti-trust blockades to attempted European telco consolidation, lagging top line growth, increasing capex and quant investing that has kept 'value' stocks like telcos out of fashion. But "encouraging signs of a meaningful improvement" are emerging in each area. Firstly, they highlight the proposed merger between French telecom operator Orange's Spanish unit with Spanish rival Masmovil, which is pending approval and completion, as "pivotal". "We expect that an approved merger in Spain could trigger further expectations of transactions in Spain, Italy, UK, France, Denmark and Sweden," they write, adding that in the past consolidation has triggered meaningful telco share price outperformance.
They also point out a progressive improvement in top-line dynamics across the sector evident in the latest batch of Q4 results, as well as falling capex and lack of warnings as further signs of an improving landscape for the sector.
The analysts also believe quant investing could turn from a headwind to neutral or even a tailwind, as investors refocus on free cash flow rather than top line growth.
Deutsche Telekom and the Netherlands' Koninklijke
KPN are among their top picks in the sector.
(Lucy Raitano)
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STRONG START FOR STOXX 600 (0851 GMT) European shares have started the new week off on a positive footing, rebounding after the biggest weekly fall since mid-December last week.
The pan-European STOXX 600 is up 0.9% following last week's 1.4% drop when evidence of accelerating U.S. inflation sent global stocks lower on expectations of higher interest rates.
Britain's FTSE 100 is up 0.8%, while Germany DAX and France's CAC 40 are gaining 1.3 and 1.2%, respectively. All sectors are firmly in the green, with energy , chemicals and tech leading the way higher. Shares in German bank Commerzbank are up 3.8% after the company rejoined the blue-chip DAX index, marking a turnaround after it dropped out in 2018.
Dechra Pharmaceuticals is lagging, down 16% after the company guided to the lower end of analyst expectations.
Here's your opening snapshot:
(Samuel Indyk)
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EUROPEAN FUTURES CAUTIOUSLY HIGHER (0728 GMT)
European equity futures are cautiously rebounding today following a sell-off on Friday after U.S. inflation came in
hotter than forecast , adding to expectations that the Fed will have to
raise rates higher
and keep them there for longer.
Futures on the Euro STOXX 50 are up 0.2%. Futures on the DAX , CAC 40 and FTSE 100 are trading up 0.1-0.6%. Focus in Europe for investors this week will be on euro area consumer prices data and the accounts of the ECB's last policy meeting, both due on Thursday.
The data calendar is light on Monday with final euro
area consumer confidence for February and U.S. January durable
goods orders the highlights.
(Samuel Indyk)
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IT'S ALL ABOUT INFLATION (0659 GMT) Markets are back to inflation watching. Just as global economic growth worries ease and labour markets remain tight, price trends have become the main focus for investors. A slew of strong U.S. economic data has reinforced the view that interest rates will stay higher-for-longer. The latest evidence came in the personal consumption expenditures price index, the Federal Reserve's preferred gauge of inflation, which shot up 0.6% last month after gaining 0.2% in December. Over in Europe, preliminary February inflation data is due from Germany, France, Spain and Portugal on Monday and Tuesday, followed by the euro bloc flash number on Thursday. Though headline euro area inflation is easing, there is mounting realisation that it could proving more stubborn than earlier expected. European Central Bank officials are not ruling out that rates might need to go up significantly beyond March. Traders are now pricing in another 75 basis points of moves in the 20-nation euro zone before the end of the summer.
On Monday, the downbeat sentiment took a toll on Asian markets. with a benchmark index falling 1% to the lowest levels since early January. The dollar hovered near a seven-week highs whle U.S. Treasury yields edged up. Incoming Bank of Japan Governor Kazuo Ueda said the merits of the bank's current monetary policy outweigh the costs, stressing the need to maintain support for the country's economy with ultra-low interest rates. This week, European investors will also digest results from the likes of Lufthansa, fund manager Abrdn, London Stock Exchange and Telefonica.
Meanwhile, jittery markets are also keeping any eye on any new developments on the Russia-China front after the U.S. said any lethal aid from China to Russia would come at 'real costs." Republican Representative Michael McCaul has said that Chinese leader Xi Jinping is preparing to visit Moscow next week for a meeting with Russian President Vladimir Putin. On the corporate front, this week at the world's largest telecoms conference, a clash between Big Tech and European Union telecoms firms over who will underwrite network infrastructure is set to dominate discussion at Barcelona.
Key developments that could influence markets on Monday: European economic data: Euro zone Feb consumer sentiment, Germany Feb CPI U.S. economic data: Jan durables goods orders
(Anshuman Daga)
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ECB still in rate-hiking mode to contain inflation U.S. inflation reaccelerates as prices remain hot Stoxx open Telecoms Roof scores ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
