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STOXX 600 up 0.1%
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Energy top gainer, tech down
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Buyouts lift Network Intl, Rovio
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U.S. stock futures mixed
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EUROPEAN BANKS BRACE FOR EARNINGS SEASON (1025 GMT) After the turmoil of the past few weeks, the banking sector in Europe braces for the earnings season enjoying some restored confidence. European banks are still down around 10% from an almost five-year high touched in late February, but the sector has surged more than 15% since tumbling to an almost four-month low on March 20. Morgan Stanley reiterates its positive view on the sector saying that on a 7.4 times estimated 2023 earnings and around 20% cash yield over next 2 years the sector is mispriced. "Less stress in the markets will allow room again for lower deposit betas at the strongest retail deposit franchises, providing upside to NII, which should more than offset potential higher funding costs," Morgan Staley analysts say.
Higher liquidity requirements could add an extra 1% headwind, they say, but the starting point is strong at 150%liquidity coverage ratio.
(Joice Alves)
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ROTATION INTO DEFENSIVES HAS LEGS, SAYS JPM (0953 GMT) JPMorgan believes defensive stocks will take the lead over value plays in the second half of 2023 and has spotted signs of investor switching from one to the other as bond yields look set to fall further. "There is some rotation evident. Post a poor start in Jan-Feb, key defensive sectors, such as staples, utilities and healthcare, appear to be finding their footing," says JPM strategist Mislav Matejka in his latest strategy piece. "On the other side, certain cyclicals, such as autos, construction, chemicals and capital goods, appear to be stalling, joining the banks peak. We think this will continue driven by further falls in bond yields, as well as a potential end to the rebound in European PMIs," he adds. In this group, JPM analysts favour names such as AB Inbev , Novo Nordisk , Enel , Engie and BT Group . Rotation into defensives has also happened within financials following the banking turmoil in March. That has seen investors buying into exchange operators like Deutsche Boerse and Euronext at the expenses of bank exposure .
(Danilo Masoni)
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STOXX HITS 14-MONTH HIGH (0835 GMT) European shares kicked off Monday on the front foot with M&A showing signs of life and subsiding equity volatility providing support, as focus turns to earning season with more big U.S. banks due to report later in the week. The region-wide STOXX 600 benchmark index was last up 0.2% after hitting a fresh high since February 2022, while the euro STOXX volatility index was up but close to the November 2021 lows hit on Friday. Slightly positive signs prevailed elsewhere, with the CAC 40 in Paris briefly hitting a fresh record high, while Frankfurt's DAX and Italy's FTSE MIB also reaching new multi-month peaks. Among top STOXX gainers were payment firms Nexi and Worldline , both up over 4%, after FTSE 250-listed rival Network International received a $2.6 bln takeover proposal, boosting its shares by 18%. Outside the STOXX, Rovio Entertainment rallied 18% following a takeover bid from Japanese game developer Sega. Here's your opening snapshot:
(Danilo Masoni)
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EUROPEAN FUTURES EDGE HIGHER (0639 GMT) European stock futures rose slightly on Monday before the cash market open as investors awaited big earnings releases in the United States this week, with banks in focus following last month's market turmoil. EuroSTOXX50 and FTSE futures were last up 0.1% and 0.3% respectively, after slight gains in Asia, while U.S. futures also pointed to a positive start for Wall Street. 59 S&P 500 companies report earnings this week including Bank of America, Morgan Stanley, and Goldman Sachs. In the day ahead, the European videogames sector will be eyed after Japan's Sega agreed to launch a 706 million euro offer for Angry Birds maker Rovio . Still in M&A, John Wood Group has decided to engage with Apollo Management for a firm offer from the private equity firm for its last buyout price of 240 pence per share.
Uponor was also on the watchlist after Belgian group Aliaxis made a $2-billion non-binding cash offer for Finnish plumbing and heating systems maker
And UBS was in focus after the Swiss bank won clearance by the U.S. Federal Reserve
for its state-back merger with Credit Suisse . EuroSTOXX bank futures rose 0.2%.
(Danilo Masoni)
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MARKETS HOPE CHINA CHOOSES TO SURPRISE ON THE UPSIDE (0554 GMT) It's been a careful start to the week in Asia with stocks and bonds little changed and the dollar holding most of Friday's bounce. The caution is understandable given the week holds updates on Chinese economic growth and global PMIs, along with the Fed's Beige book and at least eight Fed speakers. Analysts are generally optimistic for the China data given the stunning strength of recent trade figures. House prices out over the weekend also surprised with the fastest growth in 21 months, a comforting sign since housing has been a major weak spot for the economy and a vulnerability for banks. The central bank did its part by bolstering liquidity in the financial sector by rolling over maturing medium-term policy loans with higher cash offerings for the fifth month. The fund injection should help replenish liquidity gaps created by upcoming tax payments by banks and companies, as policymakers seek to gin up activity. Citi's economic surprises index for China data is at its highest level in 17 years, and the market sees upside risk for Tuesday's releases on GDP, retail sales and industrial output. Meanwhile, the CME Fedwatch Tool caused a brief stir this morning when it showed the probability of a Fed hike on May 3 at a dead cert 98%. That may have been a fat finger as it's now back at a still safe bet of 83%, so it seems investors have concluded the bank crisis isn't enough to prevent one more hike. Markets have shifted even further on the ECB to price in a 46% chance it will hike by a full 50 basis points on May 4. The first week of May is shaping up to be a doozy. Analysts at Barclays note this week's corporate earnings would have more macro relevance than usual, given they will provide information on how resilient corporate balance sheets are to potential future financial pressures.
"Quarterly bank results, especially for U.S. regional banks, should also offer a first glimpse of the fallout from the March turmoil and the related tightening of lending conditions," they add.
Goldman Sachs and Morgan Stanley had both been expected to report a drop in profit, though that might not be inevitable given last Friday's upside surprises on earnings.
State Street , M&T Bank and Charles Schwab report later today and it will be interesting to see if the banking stress had more impact on them than on the larger institutions.
Key developments that could influence markets on Monday:
- Ongoing G7 foreign ministers summit in Japan - ECB's Christine Lagarde speaks in New York - Speeches by Bank of England Deputy Governor Jon Cunliffe and Federal Reserve Bank of Richmond President Thomas Barkin
- The, often volatile, Empire Manufacturing Survey and the NAHB housing survey are due
(Wayne Cole)
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