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 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
