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STOXX 600 up 0.1%
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Oil stocks lead gainers
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Real estate slides further
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S&P 500 futures dip
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MONTH-END FLOWS POINT TO USD SELLING - CITIFX (1030 GMT) With month-end and quarter-end fast approaching, institutional investors will be required to rebalance their foreign currency hedges. This can often add to volatility in the FX market.
In a note published on Monday, CitiFX analyst Kristjan Kasikov said the preliminary estimate of month-end FX hedge rebalancing flows points to moderate U.S. dollar selling against all major currencies except the euro.
"Although fixed income performed strongly across the board, our model suggests that both international equity and fixed income investors will likely be USD sellers this month-end," Kasikov writes.
"The sell-signal in fixed income is influenced by our assumptions of lower hedge ratios and higher home bias among US based fixed income investors," Kasikov adds.
Kasikov also notes that Japanese investors' needs to increase hedges on well-performing foreign fixed income strengthen the need to buy the yen and sell the dollar, although strong performance of European and UK fixed income weakens the buy signal for euro and sterling.
(Samuel Indyk)
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BANK STOCKS AND THE "SVB NARRATIVE" (1009 GMT) It has been just over two weeks since the collapse of Silicon Valley Bank triggered a wider rout in bank stocks and unprecedented market volatility.
Amid the fallout, the main concern for U.S. bank stocks can be summed up in two points, according to Citi analyst Keith Horowitz. There are "unrealized losses from higher rates" and "the risk of deposit flight of uninsured deposits".
But the Citi analyst says that in their view if a bank has stable funding, such unrealized losses are merely "an opportunity cost borne by a lower NIM" (net interest margin).
"Since the market does not share that view, we stress tested our models for a ~50% decline in uninsured deposits which we view as very unlikely, and believe stocks seem to be pricing in a slightly worse scenario," he wrote in a note.
After running stress tests on regional bank balance sheets for a "~50% run-off of uninsured deposit accounts", Citi upgrades KeyCorp and M&T Bank Corporation to buy, with the risk/reward looking "very appealing." Amid significant market uncertainty, bank stocks are trading at levels "indicating to us strong value in the group", writes Horowitz.
(Lucy Raitano)
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EUROPEAN REAL ESTATE AT RELATIVE RECORD LOW (0918 GMT)
A sense of stability has finally returned to markets as a turbulent month draws close to an end, but pressure on European real estate stocks shows no sign of abating, possibly hinting at fresh bouts of volatility further down the road. Their sectoral index tumbled to its lowest level in 11 weeks and was last down 2.2% on the day. Top faller was Germany's Aroundtown , down more than 11%, followed by Swiss Prime Site , LEG Immobilien , SBB and Vonovia , all down around 4%. "Investor exodus continues," notes a Frankfurt trader. The real estate milestone looks even starker when benchmarked to the broader market. Relative to the STOXX 600 , the STOXX Europe 600 Real Estate index was down to a fresh lifetime low.
More reading: Europe's real estate faces 50% potential
downside - Citi
(Danilo Masoni)
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FINANCIALS AND ENERGY PROP STOXX UP (0756 GMT) Strength across financial and energy stocks was giving a welcome boost to European shares in early trading on Tuesday, lifting the STOXX 600 further away from the multi-week lows hit earlier this month on angst over bank stability. The pan-European equity benchmark was last up 0.6%, rising for a second straight day with bank and oil both up 1.5%. Highly leveraged real estate stayed near its lowest levels since October, down 0.6%. Tech was another weak spot, down 0.2%. Here's your opening snapshot:
(Danilo Masoni)
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EUROPE SET TO OPEN HIGHER (0638 GMT) Shares in Europe were expected to open a touch higher on Tuesday, as no fresh bad news in the banking sector gave a boost to risk sentiment, following a deal over failed Silicon Valley Bank that eased some worries over the sector's stability. Euro STOXX 50 and FTSE futures rose around 0.6%, while euro STOXX banks futures gained 1.5%. Easing fears about the banks propped up Asian stocks, while S&P 500 futures pointed to another positive session on Wall Street and were last up 0.3%. On the corporate front, eyes were on the latest batch of earning updates, including from online supermarket Ocado Retail and housebuilder Bellway in the UK. Diageo said its CEO Ivan Menezes will retire after nearly a decade at the helm, passing the baton to COO Debra Crew. Tourism group TUI was in focus on the first day of trading for rights in its 1.8-billion euro share sale, while reports that Germany was looking to boost military aid to Ukraine could give a further lift to defence company Rheinmetall.
(Danilo Masoni)
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CALM RETURNS: INVESTORS SWITCH TO BANK FUNDAMENTALS (0553 GMT) Turbulence in global markets is gradually giving way to stability. A day after regional U.S. lender First Citizens BancShares moved to scoop up the assets of failed Silicon Valley Bank, brave investors can probably begin to ask, "Is the worst over?" A strong show of confidence is coming from U.S. authorities as bank regulators say the system is sound but rules need review. A recover in U.S. markets, especially in beaten-down bank shares, lifted Asian stocks on Monday while the safe-haven dollar declined. Australian stocks outperformed, boosted by M&A activity.
The relief rally in Asian equities could extend to Europe, where banking shares rose on Monday, paring last week's sharp declines. A state-orchestrated rescue of Credit Suisse by rival UBS and turmoil among regional U.S. banks have fuelled concerns for the sector. But analysts at asset manager Amundi say recession fears are the main culprit and European banks are not lumbered with weak assets that would pose challenges to capital or liquidity levels. While the analysts expect a continuation of declining credit growth which is consistent with monetary tightening, they don't expect any credit crunch. "Most European banks have plentiful capital and liquidity to support the real economy: We expect them to remain open for business and to continue extending loans to creditworthy customers." The European Central Bank's board member Isabel Schnabel said on Monday the ECB could take a leaf from the Bank of England's book as it looks for new ways of managing liquidity in the banking sector and steering short-term interest rates in the market. In Germany, millions of people were disrupted on Monday as airports and bus and train stations across the country came to a standstill during one of the largest walkouts in decades in Europe's biggest economy as soaring inflation stoke wage demands. Meanwhile, a U.S. regulator sued Binance, the world's biggest crypto exchange, and its CEO and founder Changpeng Zhao for what the regulator alleged were an "illegal" exchange and a "sham" compliance programme. Zhao called the complaint "unexpected and disappointing."
Key developments that could influence markets on Tuesday: Speakers: Federal Reserve Vice Chair for Supervision Michael Barr testifies on "Bank Oversight" European speakers: ECB President Christine Lagarde gives a speech at an opening ceremony of BIS Innovation Hub Eurosystem Centre in Frankfurt; Andrew Bailey, BoE governor Banking at Bank of England participates in a Treasury Select Committee hearing on Silicon Valley Bank
(Anshuman Daga)
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