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STOXX 600 up 0.3%
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LVMH hits fresh record high after results
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UK economy fails to grow as expected in February
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U.S. stock futures inch up
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UKRAINE SCENARIOS: PEACE TALKS RISK EUROPEAN DEFENCE DE-RATING (1222 GMT) No one has a crystal ball to forecast where the war in Ukraine is heading but Citi says the conflict is now at a juncture where it is worth considering different outcomes.
The first scenario is where Kyiv mounts a successful offensive, paving the way for a negotiated peace, but also leading to losses for investors in European defence names. "We believe peace talks would likely precipitate a de-rating across the European defense sector, particularly for those companies with strong Ukraine exposure," says Citi, mentioning Sweden's Saab and Germany's Hensoldt . "However, any selloff might prove overdone given that European states appear to be strongly committed to defense restocking". On the other extreme is a "significant escalation", which of course would add upside. "There are a number of conceivable risks which might lead to significant escalation (e.g. NATO member state casualties, use of non-conventional weapons... The impact on the defense sector is likely to be correlated to the extent of any escalation," Citi notes. In the between are two other scenarios.
One envisages Russia gradually forcing Ukraine out of Donbas and declaring its objectives achieved. That, according to the bank, could see defense spending in Europe rise more than current commitments suggest. The other one sees no decisive victory nor negotiated settlement: "We think this would be neutral/negative for the sector in the near-term, as the appetite of Western powers to provide defense support could weaken if there is a sense of inertia". That all being said, Citi says the sector's re-rating "remains justified" and confirms its buy for BAE Systems , Thales , Leonardo and QinetiQ . In the meantime, Europe's Aerospace & Defence index is up 0.7% to a fresh record high.
(Danilo Masoni)
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"BUY EUROPE": NEW PEAKS FOR PARIS, COPENHAGEN AND BLUE CHIPS (1016 GMT) Some investors believe European stocks have the potential to beat Wall Street in the months ahead as a big valuation discount makes them look more attractive in an environment where central banks haven't yet finished their tightening jobs. The "Buy Europe" trade has been almost plain sailing since late 2022 when it became clear that Europe had escaped a recession, but the mini banking crisis that shook markets in March has led to a big pullback in its relative performance vs U.S. peers. However, new signs are emerging that Europe is striking back. The STOXX Europe 50 blue-chip index - which comprises heavyweights like LVMH , Nestle , Novo Nordisk and ASML - has climbed past its 2007 peak above 4,000 points and is now at 22-year highs. The index is up 10% YTD. In Paris, the CAC 40 hit an intraday record high for the third consecutive session today, while on Copenhagen, the OMX 20 is also breaking fresh lifetime highs. They are up 15% and 11% respectively, YTD. London's FTSE 100 and Frankfurt's DAX are the next ones to watch - both needing around 3% below to reach their previous lifetime peaks.
In the chart below, the performance of the region-wide STOXX 600 index -- itself 6% below its record high -- relative to the S&P 500 -- which is 16% below its peak.
More reading here: "Buy Europe" trade: down, but not out Also, Barclays strategist Emmanuel Cau last week affirmed his preference for Europe (and EM) stocks over Wall Street, even though he's recommending a more defensive tilt to portfolios.
(Danilo Masoni)
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HR MANAGERS PREDICT UK REDUNDANCIES - SURVEY (0905 GMT) Over a quarter of UK firms will likely make redundancies in 2023, according to research from Ayming UK. Ayming surveyed 200 senior human resource (HR) managers in UK companies in tech, construction, professional services and public sector to find out that "in contrast to the buoyant job market of the last couple of years", 37% of organisations are reducing recruitment while 26% say they are likely to make redundancies this year.
"Beyond cost cutting, automation is also playing a role in the shake-up of the employment landscape, especially with the recent launch of artificial intelligence like Chat GPT," Ayming said. According to the survey, a third of organisations -which included SMEs and larger cap - expected to introduce AI automation that will replace some jobs in 2023. Automation could also strengthen the case for a four-day work week, with almost two/thirds of organisations surveyed supporting a four-day week.
The survey was conducted between Jan. 23 and 27.
For more on UK empployment:
UK recruiters slow pace of pay growth in March, REC survey shows Google workers in London stage walkout over job cuts
(Joice Alves)
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LVMH SURGE TO FRESH RECORD HIGH LIFTS EUROPEAN STOCKS (0740 GMT) European shares are on the rise, getting support from heavyweight luxury stocks after Europe's largest company by market capitalisation, LVMH, reported uplifting results.
Also supporting risk sentiment were hopes of a pause in the U.S. Fed's rate-hiking cycle, following cooler-than-expected inflation data. Luxury giant LVMH shares rose almost 5% to fresh record high after reporting a 17% rise in first-quarter sales that breezed past estimates as business in China rebounded sharply. The STOXX 600 rose 0.5% with personal goods index leading gains, while utilities fell 0.9%. Other luxury companies Richemont and Hermes added around 4% each.
UK's FTSE 100 was flat after data showed Britain's economy failed to grow as expected in February as strikes by public workers hit output.
(Joice Alves)
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STOXX SEEN HIGHER AS BETS RISE FED READY TO STOP HIKING (0610 GMT)
European futures are trading higher as investors welcome cooler-than-anticipated U.S. inflation data, which stoked expectations that the Federal Reserve's monetary tightening cycle will end next month with one last interest rate hike. Data showed on Wednesday that U.S. consumer prices barely rose in March as the cost of gasoline declined. Minutes from the Fed's March meeting also showed some policymakers considered pausing hikes, before agreeing to last month's 25 basis point rise, amid concerns on whether bank wobbles would cause a broader tightening in credit. FTSE futures are lagging after data showed the British economy failed to grow as expected in February, as strikes over the course of the month hit output. In terms of corporate news, LVMH , the world's largest luxury company, reported a 17% rise in first-quarter sales, more than double analysts' expectations, as China rebounded sharply after COVID-19 lockdowns.
(Joice Alves)
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EURO(PE) IS ON A ROLL (0607 GMT) The euro emerged as the clearest winner of slowing U.S. inflation and a watchful Fed. The common currency climbed 0.7% on Wednesday and was still going at $1.10 in the Asian morning. It is up seven weeks in a row - the longest winning streak since the latter stages of 2020 when the dollar was falling and global markets were in a stimulus-soaked euphoria. The thinking goes that inflation will keep Europe's central bankers more hawkish than their U.S. counterparts, although perhaps not by much. Europe's blue-chip stocks also hit their highest in 22 years on Wednesday. Sterling is riding similar tailwinds. Earnings this week could test the dollar's downtrend as markets look for signals on consumer behaviour and signs of tightening credit. A surprise leap in Chinese exports in March may well suggest a global economy that's stronger than previously thought. British GDP and Tesco earnings later today offer another window on that, as will European industrial output and U.S. producer price data. In Asia on Thursday, news of SoftBank selling out of Alibaba weighed on Hong Kong shares, as did the cratering stock price of property developer Sunac upon its resumption of trade after more than a year-long suspension.
Australian jobs surprised to the upside, and traders largely shrugged off another North Korean missile launch. But the minutes from last month's Fed meeting, which was held in an atmosphere of heightened fears over bank stability, suggested that policymakers' next moves will depend on credit conditions - and this will put more attention than usual on big U.S. bank earnings reports when they come out on Friday. In a note titled "The Home Stretch", Goldman Sachs' chief economist Jan Hatzius is sticking with an out-of-consensus call that a U.S. recession is not a foregone conclusion, noting that bank crisis risks have receded considerably in the past month. Friday will bring some colour on the situation from Citi, Wells Fargo and JP Morgan Chase, although the focus remains on regionals. Earlier in the week, shares fell at the Bank of South Carolina after it noted thin margins and "precipitous increases in our deposit costs to meet the intense competition amongst banks, brokerages, and the U.S. Treasury." Bitcoin, meanwhile, marches on, scaling $30,000 this week for the first time since last summer.
Key developments that could influence markets on Thursday: Tesco earnings, British Feb GDP, Eurozone industrial output, U.S. jobless claims and PPI
(Tom Westbrook)
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