FUTURES DIP AHEAD OF FLASH INFLATION (0741)
European shares were heading for a softer open ahead of key inflation numbers that could drive expectations of more aggressive European Central Bank rate hikes and send decade-high interest rates up even further.
A preliminary reading of harmonised euro zone inflation for February is due at 1000 GMT on Thursday, and higher-than-expected inflation readings from the Netherlands earlier today and from France and Germany earlier in the week are a poor omen for those hoping the data will show price pressures are easing.
European government bond yields rose to fresh multi-year highs in early trading. Eurostoxx 50 March futures dropped 0.43%; German Dax futures slipped 0.3%; though British FTSE100 futures held up a little better trading flat. In company news, eyes will be on M&G shares at the open after Sky News reported Australian investment bank Macquarie Group Ltd is at the early stages of exploring a takeover bidof over 5 billion pounds ($6.00 billion) for British money manager Germany's Merck KGaA said its 2023 earnings would slip due to a decline at its electronic chemicals unit and a drop in COVID-related demand, and London Stock Exchange Group reported slightly above consensus results for 2022, and announced plans to seek shareholder approval for a buyback directed at shares owned by Blackstone and Thomson Reuters, the owner of Reuters News.
(Alun John)
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MORNING BID EUROPE-EU inflation risks loom large for markets (0530GMT)
Asian markets had thought to bask in the glow from Wednesday's radiant PMI data from China, and the region in general. Taiwan, Thailand and Vietnam all enjoyed a pick-up in activity, while JPMorgan's global manufacturing PMI rose nearly 2 points to an eight-month high of 50.8. The hopeful mood, however, could not survive Elon Musk's "Master Plan". Seems his three-hour YouTube live stream was big on robots and saving the planet but short on new vehicles, specifically a much-awaited small and affordable EV. Tesla's shares duly sank 5.6% after the bell, erasing around $36 billion in market worth, and dragging Nasdaq futures down 0.5% in Asian hours. Adding insult to injury was a further tick up in 10-year Treasury yields to a four-month top of 4.018%, while two-year yields reached their highest since 2007 at 4.921%. Investors are still smarting from a spike in the prices paid component of the ISM manufacturing survey to 51.3, the highest in five months and well above its December trough of 39.4. That saw Fed funds shift to price in a near one-in-three chance the Federal Reserve could hike rates by 50 basis points on March 22. Markets are now leaning toward a peak of 5.50%-5.75%, compared with 5.0% just a month ago. Futures have also now taken more than 100 basis points of rate cuts out of 2024, a remarkable turnaround for one month. And they are hardly alone. Back in mid-January, Euribor futures had implied ECB rates would end 2024 at 2.4%. Now it's 3.4%. Markets are fully priced for a 50bp hike on March 16, with even a non-trivial chance of 75bp, and are flirting with another 50bp in May. That leaves a lot riding on what EU (HICP) inflation figures for February show later on Thursday. Median forecasts are for an annual figure of 8.2%, but risks are on the upside following the surprises from France, Spain and Germany. There's even talk of 8.5% or more, a result that would really shake the world of bonds.
Wayne Cole
