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STOXX 600 down 0.1%
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Euro zone PMI climbs
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U.S. stock futures dip
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STOCKS: "HIGHER, BUT NOT BETTER" (1102 GMT) Equities are striking back after a turbulent end of Q1 and this week in Europe we've seen Germany's DAX climbing to its highest since February 2022 and the CAC in France closing in on its previous record high. Does this mean prospects for stock markets have improved?
Barclays look cautious, and recommend a more defensive tilt to portfolios. It adds telecoms at the expense of autos, and still prefers Europe and EM stocks over Wall Street. "EU equities are back near ytd highs, close to our YE target, yet outlook does not look better," says Barclays strategists led by Emmanuel Cau.
They single out a number of key points for investors to keep
in mind before jumping to conclusions. Here are a few:
* Growth is holding up, but with central banks committed to
trimming inflation, recession risk looms large
* The banking turmoil showed policy makers' ability to
balance financial/inflation/growth risks is not getting easier.
History suggests aggressive tightening cycles rarely end well.
* Arguably, the recession call is consensus and investors
are already positioned for it. This may provide some cushion to
equities, but something has to give at some point, as market
pricing of three Fed cuts in H2 seems inconsistent with
double-digit EPS growth estimates for 2024.
* High cash/fixed income yields offer alternatives to equities, rewarding investors' caution.
(Danilo Masoni)
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EUROPEAN LUXURY RUNNING OUT OF STEAM? (1121 GMT) European luxury was a hot topic at the beginning of 2023, outperforming the wider market as excitement rose that China's post-Covid reopening could significantly boost demand for high-end products.
But according to UBS analysts, this market interest in "turnaround" stories and away from proven winners could be over with the next raft of Q1 results, which they think will " paint a mixed picture".
"...mixed Q1 results, which could show that an easier comparable base doesn't guarantee stronger growth in China, as well as increasingly weakening U.S. luxury demand, could refocus the market on fundamentals in our view," they write in a research note.
First-quarter numbers may shift investor attention back to
"high quality, strong performing
brands," they write, and especially those with incremental
pricing opportunities.
Their top picks are Richemont , Hermes and Moncler , which they view as the most balanced, high-quality plays on China re-opening versus ongoing macro risks, and as benefitting from late-cycle pricing. The sector is currently trading at a 125% valuation premium versus the MSCI Europe, comfortably above the five-year average premium of 96%, according to UBS, but the bank says these levels are justified, given the sector's attractive long-term structural positioning.
"However, given the strong ytd performance, we see less upside risk short-term amid mixed Q1 results and a looming US slow-down, with still little visibility on the return of Chinese tourists to Europe," they conclude.
(Lucy Raitano)
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INDUSTRIAL STOCKS DRAG ON STOXX (0840 GMT) The STOXX 600 is down for a third straight day, falling 0.2%, as stubborn inflation and the tricky task facing central banks remains the focus of the week. Utilities stocks are nevertheless providing a lift, up 1.3%, as are telecom stocks , up 0.9%, with the likes of the UK's BT Group and Spain's Cellnex rising 1.4%-1.7%. Healthcare is also outperforming, up 0.9%.
The biggest weights on a sector basis are construction and materials stocks and industrial goods and services , both falling as much as 1.6%.
A survey today showed euro zone recovery picking up pace last month but the upturn was uneven across industries and countries, according to S&P Global's Composite Purchasing Managers' Index (PMI).
(Lucy Raitano)
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JOLTED MARKETS FRET ABOUT ECONOMY, FED RATE PATH (0743 GMT) Risk sentiment remains fragile as skittish investors fret about a recession after a slew of economic data through the week points to a cooling U.S. economy.
The JOLTS report on Tuesday showed that U.S. job openings dropped to their lowest level in nearly two years in February, with traders wagering that the Fed is just about done with its interest rate hikes. Investors raised their bets to a roughly 60% probability of no move following the Fed's May 2-3 meeting, compared to about a 43% chance the day before, based on pricing of interest-rate futures. And yet, Federal Reserve Bank of Cleveland President Loretta Mester said that the U.S. central bank likely has more interest rate rises ahead amid signs the recent banking sector troubles have been contained. A surprise 50 basis point hike from New Zealand's central bank shocked the Asian market, with kiwi-dollar scaling a two-month peak. Twenty-two of 24 economists in a Reuters poll had forecast the Reserve Bank of New Zealand would raise rates by just 25 basis points. Meanwhile, JPMorgan CEO Jamie Dimon said the impact of the U.S. banking crisis will be felt for years to come. "The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come," Dimon wrote in a 43-page annual message to shareholders.
Stock futures indicate a lower open in Europe, with purchasing managers index surveys for the Eurozone, France and Germany later in the day that will showcase the state of economy in Europe. Investors still anticipate few more rate hikes in the region.
A Reuters poll of foreign exchange strategists showed that the U.S. dollar will weaken against most major currencies this year as the interest rate gap with its peers stops widening. In the crypto world, Dogecoin's Shiba Inu dog replaced Twitter's blue bird on Monday as the social media company's logo (and remains there as of last twitter scroll), helping the meme coin add as much as $4 billion to its market value.
Key developments that could influence markets on Wednesday:
Economic events: S&P Global Service PMI data for Eurozone, France, Germany
(Ankur Banerjee)
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EUROPEAN FUTURES HEAD FOR A NEUTRAL START(0628 GMT)
European futures are hovering either side of unchanged, as
inflation jitters stay in focus while worries about banks remain
subdued. Those on the STOXX 50 are down 0.2%, while
FTSE futures and DAX futures are teetering
around flat. The same goes for U.S. futures.
In a shock move, New Zealand's central bank unexpectedly
raised interest rates by 50 basis points to a more than 14-year
peak of 5.25% on Wednesday.
Meanwhile, the market will be watching closely as UBS seeks to reassure shareholders that its unexpected
takeover of rival Credit Suisse can work.
In company news, the world's biggest chocolate maker Barry Callebaut has appointed a new chief executive and reported a decline in first half sales volumes. French catering and food services group Sodexo has plans to spin-off and list its Benefits & Rewards Services (BRS) business during 2024.
(Lucy Raitano)
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(Lucy Raitano)
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