NO BANKING STRESS FROM REAL ESTATE NOW, BUT … (0939 GMT) The impact on lenders from the European Central Bank's unprecedented rate hikes has been a hot topic recently, but fears of a systemic crisis have faded. Analysts are currently scrutinising potential tensions, and real estate is one of the flash points, given its sensitivity to rates. Commercial real estate (CRE) is under pressure because falling property prices and higher interest rates have heightened concerns around refinancing risks, particularly for those companies with floating-rate loans, or significant upcoming maturities. According to Barclays, CRE risks are, at worst, an earnings risk, not a capital event, for the majority of European banks. "Some exceptions where CET1 ratios could be negatively impacted under a significant CRE stress scenario are German CRE specialist banks and, to a lesser degree, Nordic banks," Barclays analysts say. "Away from these, most European banks appear able to absorb stressed impairments using earnings, without experiencing CET1 ratio declines," they add. "The main risk to our base case is if systemic risks emerge from fire sales or there is a mass withdrawal by banks of CRE lending, which would exacerbate some of the property price declines in a negative feedback loop," they argue.
"If all banks tighten their credit standards systemically,
we think monoline German CRE lenders and Nordic banks are more
at risk of a vicious cycle of CRE price declines."
ECB chief economist Philip Lanesaid on Wednesday investments
in commercial real estate are expected to be hit particularly
hard by tighter lending conditions.
(Stefano Rebaudo)
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STOXX SLIPS AS AUTOS PROVE A DRAG (0825 GMT) The STOXX 600 slipped throughout morning trading and was last down 0.4%, with the auto sector taking a hit, down 3.2% and the biggest loser across sectors.
The drop comes amid fears of a pricing war after Tesla boss Elon Musk on Wednesday said the electric vehicle (EV) maker would prioritize sales growth ahead of profit. Renault and Volvo both posted results on Thursday, with Renault falling 6.9% despite saying revenues had grown by 30% in the first quarter.
Interest-rate sensitive real estate names are the biggest winners, with the sector rising 0.7%, and banks are not far behind, up 0.4%.
Shares in Husqvarna are up 5.1% and at the top of the STOXX 600 after the Swedish garden equipment maker posted record Q1 earnings.
(Lucy Raitano)
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CAUTIOUS MARKETS FOCUS ON CENTRAL BANKS' DIVERGING PATHS (0646 GMT) Investors have hunkered down in Asian hours with stocks drifting while the dollar clings to gains from overnight. The prevailing anxious mood is likely to continue as we head into the crucial next few weeks of central bank meetings. A Reuters poll of economists showed the Fed is expected to deliver a final 25-basis-point rate increase in May and then hold rates steady for the rest of the year. Markets also expect that hike but anticipate some cuts towards the end 2023. The Bank of England on the other hand will likely need to stay on its hawkish path as data through the week showed that British inflation remained hot. According to data released on Wednesday, Britain was the only country in western Europe with double-digit inflation in March, after a more modest decline than had been expected. Investors are now fully pricing in a quarter-point interest rate rise to 4.25% on May 11 at the BoE's next meeting and expect rates to peak at 5% by September, according to futures markets. The differing strategies on opposite sides of the Atlantic have recently pushed sterling and the euro to multi-month highs and investor attention will likely remain on where European currencies go next. Meanwhile, New Zealand's consumer inflation came in below expectations in the first quarter but remained near historic highs, reinforcing bets of another interest rate hike in May. Australia's central bank will get a new specialist board to manage monetary policy, which will be chaired by the governor but have independent expert members with more power over the setting of interest rates. Elsewhere, shares of Tesla slid after the EV maker posted its lowest quarterly gross margin in two years, missing estimates. Elon Musk doubled down on the price war he started at the end of last year, saying Tesla would prioritise sales growth ahead of profit in a weak economy.
Key developments that could influence markets on Thursday:
Economic events: Germany March PPI, Eurozone April consumer confidence, France April manufacturing confidence
(Ankur Banerjee)
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EUROPEAN FUTURES STRUGGLE FOR DIRECTION AS TRADERS EYE KEY EARNINGS (0636 GMT)
Futures are struggling for direction, as sticky inflation and monetary policy come back to the forefront for traders, who also have their eyes on key earnings trickling out of Europe today. Futures on the STOXX 50 are 0.1% higher, while FTSE futures are flat and and DAX futures are down 0.1%. Volatility has dropped as worries around banking stocks receded and players are gearing up for several key central bank meetings in the next few weeks. A Reuters poll of economists found the U.S. Federal Reserve is expected to deliver a final 25-basis-point interest rate increase in May and then hold rates steady for the rest of 2023. On the earnings front, there were positive signals out of Europe on Thursday. French car maker Renault said on Thursday revenues had grown by 30% in the first quarter thanks to a rebound in sales and higher prices, while Sweden's AB Volvo lifted its outlook for key heavy-duty truck markets in Europe and North America this year as it reported a 32% year-on-year rise in order intake for the first quarter. Swiss elevator and escalator manufacturer Schindler also reported a 47% jump in first-quarter profit on Thursday.
But it's not all been plain sailing. Tesla shares are down 6.1% in Frankfurt, after boss Elon Musk on Wednesday said the electric vehicle (EV) maker would prioritize sales growth ahead of profit in a weak economy. Frankfurt-listed shares in meme stock Bed Bath & Beyond plunged 18.4% after media reports that the homeware retailer is preparing to file for bankruptcy.
(Lucy Raitano)
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