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STOXX up 0.6%, European banks at one-month high
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U.S. big banks report earnings
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Dechra shares surge on deal talks with EQT
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German wholesale price index up 2% y/y in March
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TURKEY'S BOND ROUT DEEPENS AS ELECTION NEARS [1208 GMT] Turkey will hold elections in exactly a month, and debt investors are nervous ahead of what could be the most consequential elections for the country in nearly two decades, as President Tayyip Erdogan tries to retain his grip on power.
Yields on Turkey's lira-denominated two-year bonds , which move inversely to bond prices, have risen 456 basis points to 15.98% since the start of the month, heading for their biggest monthly increase since late 2008, according to Refinitiv data. Turkey's 10-year yields have risen 210 basis points to 12.5% in that same time. The rout in Turkish bonds suggests that the market is pricing a normalization of the policy rate after the elections, and the central bank having less power to support the local debt market, according to Natasha Gurushina, chief economist for emerging market fixed income at VanEck, in a note.
Support for Erdogan, who launched his re-election campaign earlier this week, has sagged after February's devastating earthquake amid perceptions of an initially slow response. Some polls show the main opposition alliance holding a slim lead, with Erdogan's unorthodox economic policies in the past few years further eroding his popularity.
Erdogan's push for aggressive interest rate cuts have hobbled the lira and sent Turkish inflation to a 24-year peak above 85% in October before it fell back towards 50% in March.
David Austerweil, VanEck's deputy portfolio manager for emerging markets fixed income, finds most value in long-dated, low-dollar price Turkish sovereign bonds.
If the opposition wins, Austerweil sees room for total returns of more than 20%, according to a note.
(Bansari Mayur Kamdar)
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WORKING AND EATING AT HOME (1150 GMT) Frozen food surged during COVID as restaurants were closed, but with more people working and having their lunch at home, the trend hasn't fully reversed, bolstering the prospect for companies producing and selling anything from ready meals, to frozen meat, fruit and vegetables. According to Barclays analysts, the global frozen food market had a value of $143 billion in 2022, growing at a 1% CAGR historically since 2007, but accelerating to a 2% CAGR since COVID. Barclays sees the frozen food category growing at 2% CAGR over the next five years.
That could be good news for some of world's largest food producers including Nestle , Conagra and Findus owner Nomad Foods .
But they will face tougher competition from private labels.
"Frozen food has benefited from COVID trends, but remains under structural pressure from
private label and other options available to consumers such as delivery and meal kits," says
Barclays.
Frozen food has been particularly popular in the U.S., the biggest market, accounting for a
third of the global market and five times the size of the second-biggest market, China.
Private labels are more prevalent in Europe than in the U.S., Barclays adds.
(Joice Alves)
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COMMERCIAL REAL ESTATE A COMPELLING INVESTMENT, RAYMOND JAMES SAYS (0945 GMT) There's been a lot of worry that a crisis in the commercial real estate market might be the next to unfold following the banking turmoil in March. But Raymond James looks at why the sector presents a compelling investment opportunity in the Unites States.
The office segment is likely to face the biggest headwinds, but accounts for only 15% of the $20 trillion CRE market and less than 4% of REIT market cap, says Jonathan Hughes, director of REITs research at Raymond James.
He notes that REIT sectors with less economic sensitivity – infrastructure, single-family homes, self storage – have held up relatively well since the regional banks fallout. These were laggards in 2022.
Hughes and colleagues further highlight: - REIT balance sheets are in good shape
- REITs have access to capital - REIT earnings growth have been more stable versus the S&P 500 due to contractual leases, high operating margins, low labor intensity, limited supply, and little international exposure Banks hold less than 40% of the total CRE debt, they note, and argue that more "conservative" loan-to-value underwriting and "solid" net operating income growth driving higher values over past five years should provide enough cushion to avoid meaningful loan losses.
They see opportunities emerging for REIT consolidations from distressed private real estate, and identify Sunstone Hotel Investors , Xenia Hotels and Resorts and Hersha Hospitality Trust as candidates among lodging companies.
CubeSmart in the self-storage space and Elme Communities and Veris Residential among apartment builders are other potential M&A candidates, they say.
(Susan Mathew)
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STOXX SET FOR LONGEST STREAK OF WEEKLY GAINS IN 2023(0828 GMT) The STOXX 600 is about to wrap up its fourth week of gains, rising 0.4% this morning which would add 1.5% week-on-week. This is the longest string of weekly gains for the index since late last year. On a sector basis, real estate names are popping 1.6%, supported by the market's growing confidence that various central-bank rate-hiking cycles may be nearing an end.
Healthcare stocks are also on the up, rising 1%, while insurance is languishing at the bottom, down 1.1%. Travel and leisure , oil and gas and basic resources are also in negative territory.
Soaring above all is the UK's Dechra Pharmaceuticals , up 36% on news that the company is in talks with EQT on a possible bid.
Swedish food processing company AAK is the second big riser, up 9.5% after Q1 results.
Shares in rail transport manufacturer Alstom meanwhile are down 4.4% after news that its CFO will leave the company.
(Lucy Raitano)
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EUROPEAN FUTURES RISE AS INVESTORS EYE END OF RATE CYCLE (0637 GMT) European futures are flashing green this morning, tracking Asian shares which moved higher after Singapore sent an unexpected doveish signal by keeping the bank rate unchanged.
The pause in Singapore's policy tightening has given a boost to market confidence that the Fed's next hike could be the last this cycle. Futures on the STOXX 50 FTSE and DAX are up 0.2%-0.3%. Such a rise would see the STOXX 600 head for its fourth straight week of gains. In company news, Birkin bag maker Hermes reported a 23% rise in first quarter sales, and Dutch navigation and digital mapping company TomTom reported better-than-expected revenue for the first quarter of 2023.
(Lucy Raitano)
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SINGAPORE SIGNALS A PEAK FOR POLICY TIGHTENING (0626 GMT)
Singapore's central bank sprang the surprise of the Asian day by halting its tightening cycle when markets had expected a sixth straight round of restraint. The Monetary Authority of Singapore (MAS) said there was enough currency appreciation - controlling the SGD is its primary policy tool - already in the pipeline to ensure inflation slowed sharply as the year progressed. It also sounded more downbeat on the economic outlook as GDP growth missed forecasts with a rise of just 0.1%. The MAS is a famously conservative institution so pausing was a big step, and joins peers in Australia, India, Canada and South Korea among others. Markets still imply a two in three chance the Federal Reserve will hike its rates to a 5.0-5.25% range in May, but see that as the end of the line for this cycle. Indeed, the possibility of an easing is envisaged from July and rates at 4.25-4.5% by December. Supporting the dovish cause was the soft reading on March U.S. producer prices, and retail sales later today will likely do the same. Median forecasts favour a dip of 0.4% but risks seem tilted to the downside with Goldman Sachs warning of a sharp pullback in spending following the collapse of SVB. Analysts at NatWest Markets are tipping a drop of 1.3% for March, the weakest performance since July 2021. Market pricing for future Fed cuts stands in stark contrast to the outlook on the European Central Bank, where another 50 basis points of hikes are in the curve with no easing this year. This divergence has seen the spread between U.S. 10-year yields and German bunds shrink to its smallest in two years near 100 basis points. A break under 100bp would leave the spread at its narrowest since early 2014, when the euro was up around $1.3600. The single currency duly made a one-year high of $1.1075 in Asian hours and is up across the board in a blow to many travel plans. It made a five-month top on the yen, a 10-month peak on the Singapore dollar and a 17-month high on the Australian dollar. The U.S. dollar is now on track for its biggest weekly fall in three months and has weakened five weeks in a row - a run not recorded since mid-2020.
Key developments that could influence markets on Friday: - Earnings season underway with Citigroup Inc , Wells Fargo and JPMorgan Chase & Co - ECB's Christine Lagarde and Fabio Panetta participate in IMF/World Bank Spring meetings in Washington, along with many other central bankers - Fed Governor Christopher Waller speaks on the economic outlook
(Wayne Cole)
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