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STOXX 600 down 0.8%
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Eyes on ECB rate decision
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Profit beats push Shell, Equinor higher
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U.S. stock futures lower
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SHORT TURKISH CREDIT & OTHER PLAYS BEFORE ELECTIONS (1153 GMT)
Turkey goes to the polls on May 14, with President Tayyip Erdogan facing the greatest
electoral challenge of his two decades in power and investors nervous on what this means for the
country's unorthodox monetary policy.
Latest polls show Erdogan trailing in a tight race largely due to a cost-of-living crisis
sparked by his push for ultra-loose monetary policy that has hobbled the lira and
sent Turkish inflation to above 85% in October.
"Our highest conviction trade before Turkey goes to the polls is our Heavy Underweight on
sovereign credit," said Sergi Lanau, director of global EM Strategy at Oxford Economics, in a
note.
"A spread of around 600bps is too tight given high external vulnerability and will widen
significantly if either side disputes close electoral outcomes."
Lanau also remains underweight on the lira that has taken quite a beating from Erdogan's
push for aggressive interest rate cuts.
"The outlook for the currency could improve dramatically if policies change but upfront
depreciation will be unavoidable given extreme external imbalances and measures in place to
ration dollars," he added.
Meanwhile, Goldman Sachs said it was "cautious" on Turkish banks heading into elections,
with lenders more vulnerable to a potential post-vote rate hike.
(Bansari Mayur Kamdar)
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1 HOUR TO GO: POSITIONING FOR ECB OUTCOMES (1112 GMT) It's almost certain that in around 1 hour the European Central Bank will deliver its seventh rate rise in a row but the size of the move is still somewhat uncertain.
A 25 basis-point hike is fully baked in but a 50 bps move isn't ruled out either and that could see big market swings. Any change in wording and comments from ECB President Christine Lagarde at the press conference at will also be closely watched. ING sees the euro slipping to $1.08, under a dovish outcome of the policy meeting, and rising to $1.12 in a very hawkish scenario. Likewise, the 10-year Bund yield is seen swinging between 2.20% to 2.70%, respectively. The euro was last flat on the day at $1.106, having jumped almost 0.6% on Wednesday. The German 10-year yield was last at 2.259%. Below a snapshot of ING's ECB scenario analysis.
More reading here:
* ECB to raise interest rates for a seventh time in inflation fight
* GRAPHIC-Too high for comfort: Five questions for the ECB
(Danilo Masoni)
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DON'T COUNT OUT CHINA JUST YET (0940 GMT) Chinese equity markets will make decent gains in 2023, Capital Economics expects, even though the rebound in economic activity in the country after the end of some of the world's strictest COVID-19 restrictions, has done little to boost them so far.
In the second quarter, MSCI's China Index is down around 6.5% to date, while the MSCI World Index is broadly flat.
"Part of the reason China's rapid economic rebound hasn't led to a renewed market rally over the last month could be that investors fear it will be offset by a smaller policy stimulus," Capital Economics market economists write in a note.
However, the consultancy still expects China's equity markets to make further gains this year.
"First, while we do expect China's recovery to slow, we think the strong economic momentum will keep growth fairly strong over the rest of this year," they write. This should give a boost to corporate earnings.
"Second, the valuations of equities in China generally still look quite low ... That suggests to us that sentiment towards the country's market is still not overly optimistic, leaving room for further gains over the rest of this year." Overall, Capital Economics expects the MSCI China Index to rise by around 12% by the end of this year even as other emerging market indexes struggle as the U.S. falls into recession.
(Samuel Indyk)
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STOXX DIPS, OIL STOCKS BOUNCE, BANKS STEADY (0839 GMT) European shares were off to a cautious start on Thursday with the region-wide STOXX 600 index falling around 0.4% in morning deal, dragged down by losses spread across most sectors on another heavy day for earnings releases. Among top STOXX fallers were lender Virgin Money, builder Skanska and defence group Leonardo, all down more than 6% following disappointing quarterly numbers.
Energy stocks bucked the broader weakness, up 0.8% following recent losses, helped by profit beats at oil majors Shell and Equinor. Banks showed little signs of being bothered by the latest signs of stress from U.S. regional banks, and were last unchanged on the day. Trading however remained nervous ahead of likely rate increase at the ECB. A gauge of euro zone volatility briefly hit a 5-week high before paring back. It was last above 20 points.
(Danilo Masoni)
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EUROPE SIGNALS WEAK START ON ECB DAY (0614 GMT) Shares in Europe looked set to open a touch lower on Thursday after the Federal Reserve opened the door to a pause in its year-long tightening campaign, hours before an European Central Bank rate decision.
Euro zone policymakers are widely expected to raise borrowing costs by another 25 basis points later on but a bigger hike is not ruled out either, as the bloc grapples with sticky inflation. Euro STOXX and FTSE 100 futures fell 0.3-0.4% around 30 minutes before the cash market open. Euro STOXX bank futures fell 0.7%, slightly underperforming after fresh signs of stress from another U.S. regional bank - PacWest Bancorp. In corporate news, it's another heavy day for earnings releases. Profit at oil major Shell fell slightly from the previous quarter to $9.65 billion, but topped expectations. Sales growth at heavily indebted retailer Casino slowed in the first quarter, dragged down by its supermarkets and hypermarkets in its core French market. In autos, Volkswagen reported a 22% rise in revenue but saw a drop in operating profit after last year's first quarter profit was boosted by commodity hedging. Danish drug developer Novo Nordisk reported first-quarter operating profit above analyst forecasts, helped by sales in the United States of its hugely popular Wegovy weight-loss drug. In M&A, the Financial Times reported that Vodafone and CK Hutchison were close to agreeing to a 15 billion pounds combination of their UK telecoms businesses that would create the country's biggest mobile operator.
(Danilo Masoni)
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NEXT UP ECB: WILL IT BE A HAWKISH 25 OR DOVISH 50? (0559 GMT)
The spotlight moves swiftly from the Fed's "possible pause or pivot" message overnight to the European Central Bank, where the direction of rates is not in question. It will be a seventh rate rise for the ECB, the central bank for a 20-country zone whose headline inflation is 7%, and it has so far dismissed the ongoing banking crisis as U.S.-specific.
Will the ECB go for a heavier 50 basis-point hike and signal a possible pause, allowing President Christine Lagarde to echo Fed Chair Jerome Powell's "credit tightening" excuse? The odds are for a smaller rise. The Fed on Wednesday delivered what markets are convinced will be the last rate hike of the cycle. It signalled it may pause further increases, giving officials time to assess the fallout from the bank failures, wait on a political resolution to the U.S. debt ceiling, and monitor inflation. Another bank soon reported trouble. PacWest Bancorp fell nearly 60% after announcing it is exploring strategic options, including a potential sale or capital raise. A liquidity boost it announced in March failed to inspire confidence in its ailing share price. Those worries left Asian markets pricing in not just a possible peak in U.S. rates but even a fall. Fed Funds futures imply a 52% chance of a rate cut in July. The focus will move back to the tech sector later in post-market hours in the United States when the world's most valuable company, Apple Inc , may report a more than 4% drop in revenue, its second straight quarterly decline, weighed down by consumers shunning non-essential purchases such as iPhones and Mac computers and slowing growth at its services business.
Key developments that could influence markets on Thursday: - Economic events: ECB rate decision, Eurozone March PPI, Germany trade balance, U.S. initial jobless claims - Earnings: Apple, Shell, Shopify, ArcelorMittal, Shell
(Vidya Ranganathan)
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