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STOXX rises 0.3%
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EZ core CPI accelerates, headline drops
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Wall St futures edge up
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U.S. inflation due
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A 20-YEAR FIRST AS STOCKS INCREASE BUT FINANCIALS PLUNGE (0956 GMT) Morgan Stanley notes that March is the first time in 20 years that world stocks recorded monthly gains when financials have fallen more than 10%. MSCI's World Index is up about 1.7% for the month after losing around 2.5% in February. MS cites a weaker dollar, stable earnings revisions and some "solid" economic data.
But this resilience will likely "falter" in the second quarter as the banking turmoil tightens credit conditions and weighs on economic and earnings growth, MS' chief European equity strategist Graham Secker says.
In Europe, an index of top 50 companies is set to end about 0.7% higher in March even as the banks index falls about 14% as investors rotate in "quality" tech stocks. Secker recommends defensive sectors.
Household and personal products, utilities, food retailing and healthcare are sector that have shown greater outperformance in Europe than elsewhere, MS notes.
They identified 35 "quality" stocks in Europe that should
outperform into 2025.
(Roshan Abraham and Susan Mathew)
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SHOULD WE BRACE FOR MORE FINANCIAL ACCIDENTS? In late 2022, British liability-driven investment (LDI) funds triggered a crash in UK government bonds. A few weeks ago, the failure of the Silicon Valley Bank in the U.S. set off the largest moves in the yield curve since the 80s. It might be worth asking if we are done, or if the financial system could still deliver shocks and nasty surprises. "When 40 years of rising public and private sector debt meets the sharpest rise in interest rates in 12 months, the only known is that accidents are likely," says James Stuttard, head of the global macro team at Robeco. "Where they occur precisely is the million-dollar question." Stuttard provides some examples.
U.S. corporate debt to GDP has never been higher than on the eve of a recession as it is now. Meanwhile, the ratio of U.S. government debt to GDP is 120%; in 2007, versus 60% right before the global financial crisis. "This is far from a U.S.-only issue: be it French corporate debt, Italian government debt, or Chinese state-owned enterprise debt, the aggregate debt-to-GDP statistics of all of the world’s major economies have risen, during decades of easy money and increased borrowing," he argues. "The implications for portfolio positioning over the medium to longer-term are clear: steeper curves, lower yields, and opportunities to pick up spread product at recessionary levels."
(Stefano Rebaudo)
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STOXX SET FOR BIGGEST WEEKLY JUMP SINCE JANUARY (0751 GMT) Europe's STOXX 600 is little changed on Friday although it is still up around 3.4% for the week, its biggest weekly increase in three months.
The pan-European benchmark was last up just 0.03%, with most of the major bourses in Europe broadly flat ahead of key European and U.S. inflation data.
Pressure on the real estate sector is showing little sign of easing, with the sector lagging in Europe, down 0.6% after falling to its lowest level since October earlier this week. Retail and food & beverage continued their recent strong momentum, rising 0.7% and 0.8%, respectively.
Shares in dual-listed Tui continued to slide in the week at it conducts a capital increase to repay state aid. Its Frankfurt listing has slid 23% in the week, on track for its biggest weekly drop since the onset of the pandemic in March 2020.
Here's your opening snapshot:
(Samuel Indyk)
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EUROPEAN FUTURES STEADY AHEAD OF PIVOTAL INFLATION DATA (0630 GMT) European equity futures are little changed on Friday, with inflation data back in the spotlight after recent troubles in the financial system.
Euro area consumer price growth is expected to slow on an annual basis, but the core measure is seen hitting a record high of 5.7%, putting pressure on the ECB to push on with further rate hikes. The Fed's preferred measure of inflation, personal consumption expenditures (PCE), is also released today. Economists polled by Reuters expect the core measure to hold steady at 4.7% annually.
Euro STOXX 50 futures are down 0.05% with negligible moves seen in DAX , CAC and FTSE 100 futures, a very different picture from the previous Friday when worries about Deutsche Bank sent global shares reeling.
Wall Street futures are little changed, while MSCI's broadest index of Asia-Pacific share excluding Japan is notching a 0.5% gain.
(Samuel Indyk)
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Q1 WAS HARD TO GET A HANDLE ON, AND A CHOPPY Q2 BECKONS (0557 GMT)
A lot of investors went in to this year expecting the U.S.
interest rate outlook to reveal itself, and for clarity on that
front to inform pricing for pretty much everything else.
Three months have gone by and it hasn't quite worked out
that way.
Pulling in one direction is a bank collapse that set
interest rate expectations diving. Pulling in the other is
persistently high inflation.
After a month of wild swings for bonds and interest rate
futures, rate expectations are settling around a peak in the Fed
funds rate near 5% and then steady downhill from there.
Traders reckon policymakers will need to be careful while
the effects of fragile bank confidence roll through the economy.
The outlook remains far from clear while the sentiment on
banks and lending is so delicate. One piece of clarity is the
contrast with Europe, where markets have priced in another 50
basis points in hikes this year and inflation is running hot. Euro zone inflation data later in the day can reinforce
that, if it echoes stronger-than-expected German figures
published on Thursday. The euro is up 1.8% on the
quarter. Sterling is up 2.5%.
Nerves on banks and lower U.S. Treasury yields have
delivered investors into the arms of profitable, big cap
technology companies. The Nasdaq , is eying its best
quarter in more than two years.
Elsewhere, there are positive signs - China's manufacturing
activity expanded again in March, albeit at a slowing pace, and
there are growing signs of an end to the regulatory storm there.
E-commerce firm JD.Com is planning to spin off its
property and industrial units, sources told Reuters, following
in the footsteps of similar plans at rival Alibaba ,
which markets have taken as a broadly encouraging signal.
On the flipside, Japan's government said on Friday it plans
to restrict exports of 23 types of semiconductor manufacturing
equipment, aligning its technology trade controls with a U.S.
push to curb China's ability to make advanced chips.
The second quarter may prove as difficult to navigate as the
first.
Key developments that could influence markets on Friday:
Economics: Euro zone inflation, U.S. core PCE
(Tom Westbrook)
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