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STOXX 600 up 0.1%
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OPEC+ announces output cut
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Energy stocks rally
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Nasdaq futures fall
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U.S. STOCKS UPSIDE LIMITED EVEN AS FED HIKING CYCLE NEARS END (1034 GMT) U.S. stocks tend to rally in the months following the end of the Fed's hiking cycles, but the possibility of a recession limits upside this time around, Goldman Sachs says. "While history suggests upside risk to our forecast for a flat S&P 500, we believe valuations and earnings each face specific headwinds that will prevent near-term returns from being as strong as usual," GS said in note on Friday. Goldman Sachs notes that historically, in the three months following the peak Fed funds rate, the S&P 500 has returned an average of 8% and, on a 12-month basis, the index has returned an average of 19%. However, the brokerage expects just 1% S&P 500 EPS growth in 2023 and 5% in 2024 due to recent turmoil in banking sector and sees no upside to its year-end S&P 500 forecast of 4,000.
In fact, 4,000 represents an over 2.5% decline from current levels.
Markets started to believe U.S. interest rates peaked following the Fed's 25 bps rate hike move last month, but odds for another 25 bps have since risen, especially after OPEC+ announced surprise output cuts, sending crude prices higher.
(Roshan Abraham)
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WHAT IS DATA TELLING US? NOT MUCH (1005 GMT)
With policymakers saying they will take a data-driven approach when it comes to monetary decisions, key economic numbers are been scrutinised.
But UBS analysts argue that data in the euro zone have been directionless for almost a year.
UBS implied recession probability for February has swung widely in February. It currently stands at 83%, up from the 56% estimated in early February.
For the month of February we have 42% of hard data in hand, including employment, autos and construction data, they say. "Nevertheless, this partial data suggests the hard data cycle remains directionless since last May, wobbling up and down in such a way that our turning point algorithm has trouble picking up a decisive phase shift".
(Joice Alves)
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OPEC+ MOVE: WHAT'S IN IT FOR EQUITY INVESTORS (0851 GMT) The OPEC+ surprise output cut has boosted crude prices and that has fuelled a strong rally in energy stocks. But what exactly are the implications for equity investors? Alastair Syme, head of energy research at Citi, has looked into it to conclude that the big caps look better off, while U.S. shale growth-plans will accelerate. "... we believe that net selling of the sector over the last 4-5 months has seen many investors neutralise their sector weighting. Any move to re-weight would likely benefit most on the largest market cap names," says Syme, pointing to Exxon Mobil , Chevron , Shell and BP . "We continue to believe that US shale is both the low-cost and the marginal supply barrel in global markets, and has abundant scope to grow when someone else (i.e. OPEC) tries and sets the price higher," he adds.
(Danilo Masoni)
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ENERGY KEEPS STOXX AFLOAT (0804 GMT) The OPEC+ output cut announcement is doing its thing. Crude prices were up more than $4 a barrel and energy stocks were stealing the show in Europe with gains of more than 3% for the big majors and even more for the smaller energy contractors. Their gains more than offset weakness elsewhere including in airline and tech stocks, helping the STOXX 600 regional benchmark nudge up 0.2% in early trading on Monday. The commodity heavy FTSE 100 outperformed, up 0.7%. Here's your opening snapshot:
(Danilo Masoni)
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FTSE SEEN BUCKING WEAK EUROPEAN START (0643 GMT) European shares were set to open on the back foot on Monday as inflation jitters resurfaced following a surprise OPEC+ oil production cut, although futures on the commodity-heavy FTSE 100 index edged up 0.2%.
Oil stocks were set to rally across the region following a rally of peers in Asia with premarket indications from traders calling for gains of more than 2% for oil majors BP , Shell , TotalEnergies and Eni .
Elsewhere, eyes are on Hyve after the Financial Times reported that M&G Investments and two others will vote against a private equity takeover of the British events group.
Still in M&A, LNG firm Exmar was also in focus after top shareholder Saverex announced a minority buyout. Finally, logistics firm DSV was set to open lower after a share placement.
(Danilo Masoni)
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OIL SPIKE A BLACK MARK FOR INFLATION, CONSUMER DEMAND (0559 GMT) Oil prices have stolen the show in Asia on Monday, and not in a good way if you care about global inflation and consumer spending power.
The Organization of the Petroleum Exporting Countries and their allies including Russia (OPEC+), stunned markets by announcing production cuts of about 1.16 million barrels per day, preempting a meeting of ministers due later on Monday. Brent and U.S. crude futures both jumped more than 5%, though they were off the early peaks. Analysts assumed OPEC+ was trying to put a floor under prices, around $80 a barrel for Brent and $75 for the U.S. flavour of oil, and Goldman Sachs quickly raised its forecast to $95 a barrel for year end. Then again, some thought it might also suggest producers were worried that demand was missing bullish forecasts given physical cargoes are arranged months in advance of delivery. If the price increase sticks, it will be bad news for headline inflation and will leave a sour taste after Friday's core U.S. Personal Consumption Expenditures data seemed to bode well for a cooling of cost pressures. The market responded by pushing bond yields and the dollar higher, while paring expectations for how much the Federal Reserve may cut rates later in the year. Futures have around 38 basis points of easing priced in by December, compared to more than 100 basis points during the banking crisis of mid-March. Yet, higher petrol prices are also a tax on consumers and have a close correlation to consumer sentiment, especially in the United States. It's also unlikely to be taken well by the White House given the political pain of higher gas prices. Concerns about consumer demand were not helped by the Caixin/S&P survey of Chinese manufacturing in March that badly missed forecasts at 50.0, largely due to a weakness in export orders. This survey concentrates on smaller firms and exporters and suggests foreign demand is a headwind for China even as the domestic service sector roars back. Export-reliant Japan and South Korea also saw manufacturing activity contract in March. Both are major importers of energy, so they will not welcome the spike in oil.
Key developments that could influence markets on Monday:
- The Joint Ministerial Monitoring Committee (JMMC) of the OPEC and non-OPEC countries meets via videoconference
- March PMIs for Europe, while the U.S. ISM survey of manufacturing is seen easing a touch to 47.5. Auto sales for March will offer an early read on consumer demand
- Federal Reserve Board Governor Lisa Cook speaks on the U.S. economic outlook and monetary policy
(Wayne Cole)
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