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STOXX 600 up 0.3%
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Eyes on U.S. inflation data
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Volvo rallies on record profit
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U.S. stock futures inch up
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LUXURY: ALL YOU NEED IS CHINA UPGRADES (1024 GMT) Luxury is very much in focus today, hours before Paris-listed LVMH , the biggest European company by market cap, kicks off earnings season with its sales numbers for Q1. The space has done amazingly well in 2023.
LVMH is up 24% and close to lifetime peaks. So are Hermes and L'Oreal , also near record levels, after double-digit gains year to date, while Kering and Richemont are both up around 17% so far this year. The run, though, seems to have been driven mostly by an expansion of their valuation multiples.
So, now that the luxury PE premium to the market, at 94%, is near record levels and more than twice long-term averages, one may wonder what can spur further gains in the sector.
Citi believes that depends on China trends.
"A more robust earnings upgrade cycle driven by China is probably needed at this point for shares to perform further," Thomas Chauvet, head of luxury research at Citi, says. "With the 1Q23 reporting season starting... focus will be on potential surprises from China’s reopening (and how to model growth in subsequent quarters) and relative resilience from US/European clientele," he adds.
(Danilo Masoni)
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WHY THE SWISS FRANC IS THE BEST DOLLAR SHORT (1021 GMT) The Swiss franc has shrugged off the recent banking turmoil, and is now approaching 0.90 francs to the dollar, trading near its strongest level since June 2021.
Its rise could continue with investors becoming increasingly cautious about the greenback, as U.S. interest rates are expected to be close to their peaks. The currency historically has had the most significant positive reaction among G10 currencies to a fall in U.S. rates, while it is not vulnerable to a fall in risk sentiment. "The great thing about the Swiss franc is that it has the highest beta to U.S. front-end rates in G10 and the lowest beta to risk," says George Saravelos, global head of forex research at Deutsche Bank. "As long as you believe the peak in Fed Funds is approaching, like we do, it should be one of the most efficient dollar shorts irrespective of the view on equities," Saravelos adds, saying Deutsche Bank is targeting a move to the low 0.80s for dollar/Swiss franc.
(Stefano Rebaudo)
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CAC NUDGES UP TO NEW RECORD PEAK (0810 GMT) Equities in Europe got off to a cautiously positive start on Wednesday and that was enough to nudge the CAC 40 up to a fresh intraday record high for the second day in a row. The French benchmark index was last up 0.5% while the region-wide STOXX 600 added 0.3%. The broader picture across country indices was mixed though. Behind the CAC 40's ascension to fresh peaks this year are double-digit gains in luxury heavyweight LVMH , which reports Q1 sales after the market closes. Its shares are up 24% YTD. Also contributing are other fashion plays L'Oreal Hermes , along with chipmaker STMicro and automotive company Stellantis ; up 24-38% in 2023.
Top gainer on the STOXX this morning was truck maker Volvo , up 8% after posting a record profit for Q1.
(Danilo Masoni)
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EUROPE SET FOR MUTED START (0633 GMT) European shares were expected to open broadly unchanged on Wednesday as investors treaded carefully ahead of the U.S. inflation report for March that will be key for the Federal Reserve's policy decision next month. EuroSTOXX50 and FTSE futures were last down 0.2% and 0.1%, respectively, following weakness in Asia, while U.S. contracts pointed to a muted start later on Wall Street. In corporate news, earnings are progressively taking centre stage with luxury group LVMH , Europe's most valuable company, due to report Q1 sales after the close, which will also be watched for indications on the strength of China's recovery. AB Volvo shares were set to jump at the open after the truck maker posted record Q1 profit as revenue and margins rose, in a sign the company had begun to overcome bottlenecks and inflation that had hurt the industry.
Eyes also on UBS after the Swiss parliament failed to approve the financial guarantees used to rescue Credit Suisse last month, in a largely symbolic vote.
(Danilo Masoni)
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NERVY MARKETS WAIT ON INFLATION REPORT, FED CUES (0558 GMT) Today marks what has become a monthly routine when investors hold their collective breath for the U.S inflation report, to gauge just how sticky prices are likely to be and the path the Fed will take to tackle inflation. Also due later in the day are minutes of the Fed's last meeting in March, when the central bank raised rates by 25 basis points and hinted that it may just be at the end of its hiking cycle. Investors will parse through the commentary to better understand the Fed's thinking about the turmoil in the banking sector, which had stoked expectations that the Fed may need to cut rates. But economic data along with rhetoric from Fed speakers have led markets to price in a two-thirds chance of a 25bp hike in May and standing pat thereafter, according to CME FedWatch tool.
And so, Asian shares are drifting, while gold soars and the dollar stalls. Philadelphia Federal Reserve Bank President Patrick Harker said he feels the Fed may soon be done raising interest rates as he reiterated that the central bank is committed to bringing inflation down to its 2% target.
The consumer price index is expected to show core inflation rose 0.4% on a monthly basis and 5.6% year-over-year in March, according to a Reuters poll of economists. Meanwhile, Switzerland's parliament on Tuesday failed to approve the 109 billion Swiss francs ($120.75 billion) of financial guarantees used to rescue embattled lender Credit Suisse last month, in a first-round vote that was largely symbolic given the state had committed the funds. Switzerland's upper house had approved the rescue earlier on Tuesday, meaning the two chambers of the legislative body will vote again on Wednesday. In corporate news, investors will watch out for first-quarter earnings from French luxury goods group LVMH that will likely shed light on demand from China after COVID-19 restrictions were lifted in that country late last year.
Elsewhere, Newmont Corp laid down a best and final offer for Australia's Newcrest Mining Ltd on Tuesday at A$29.4 billion ($19.5 billion) to close a deal that would extend Newmont's lead as the world's biggest gold producer.
Key developments that could influence markets on Wednesday: Economic events: Inflation reports from Serbia, Hungary; Bank of Canada rate decision; U.S. inflation report; Fed minutes Speakers: BOE Governor Andrew Bailey, ECB's Luis De Guindos
(Ankur Banerjee)
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