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STOXX 600 down 0.6%
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SBB scraps rights issue
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Euro zone volatility subdued
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U.S. stock futures dip
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BUY EUROPE OVER US: GAME OVER? (0850 GMT) Buying Europe over the U.S. has been a profitable equity trade since the second half of 2022 but its days seem to be numbered, at least according to JP Morgan. "The time has come to close the trade of (overweight) Eurozone vs the US," writes Mislav Matejka, strategist at the U.S bank.
"Europe was the least liked region last summer, when the
consensus of economists was that it has already entered a
recession, but it has transitioned to a consensus long, a
preferred play on China rebound, and has enjoyed a big move up
in activity," he recalls.
"Given this, from the low last September to last week,
Eurozone equities have advanced as much as 30% vs the US. One
should be locking in these gains, especially if our current
sector and style views of more defensive leadership keep gaining
traction," he adds.
JPM notes that in past U.S. recessions (Europe's) equities
have suffered and that "the best of the momentum" from China's
reopening is likley behind us.
(Danilo Masoni)
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REAL ESTATE FLASHING RED (0800 GMT) It's a day of heavy losses for real estate in Europe after top Swedish landlord SBB scrapped plans for a rights issue as its shares plummeted amid growing liquidity concerns that sparked S&P to cut its credit rating to junk. The STOXX Europe 600 Real Estate index was the biggest sectoral faller in early deals, down more than 2% at one point - welcome news for the short sellers.
SBB slid as much as 9.5% in Stockholm, adding to a 20% slide the day before, dragging other Swedish property stocks Fabege , Castellum and Balder lower. Real estate jitters however didn't show signs of spilling over to the broader market.
The region-wide STOXX Europe 600 index fell 0.3% and a gauge of euro zone equity volatility languished just above 18 points. Banking stocks were flat.
Yet, ING said SBB's troubles might cause fresh issues for the Swedish crown, already under significant pressure, especially against the euro. "This is sending shockwaves to the real estate sector in Sweden (and also spreading across Europe) and once again raising questions about the path of monetary policy in Sweden in light of the large slumps in house prices," wrote ING strategist Francesco Pesole. In the snapshot the top real estate fallers by mid morning.
(Danilo Masoni)
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(Danilo Masoni)
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EUROPEAN FUTURES SEEKING DIRECTION (0645 GMT) European shares were set to open without clear direction on Tuesday with futures moving around parity following an uncertain session in Asia and a flat Wall Street close, as investors grow cautions ahead of Wednesday's U.S. inflation report. EuroSTOXX50 and DAX contracts were last little changed, while FTSE 100 futures added 0.1%, as London reopens following a long weekend. U.S. futures were down slightly. In European corporate news, some earnings releases were in focus. Dialysis specialist Fresenius Medical Care reported a drop in its Q1 adjusted operating income but said labour shortages were slowly easing. Chemicals group Evonik reported a smaller than expected drop in Q1 core profit, while Daimler Truck reported a higher return of sales, towards the top end of its annual outlook for 2023. In M&A, sportswear group JD Sports proposed to buy France's Groupe Courir for an enterprise value of 520 million euros. SBB remained on the watchlist after the Swedish landlord delayed its dividend and scrapped plans for a $259 rights issue following heavy losses in its share price in the wake of a credit rating downgrade to junk.
(Danilo Masoni)
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US UNCERTAINTY FEEDS CAUTION IN ASIA (0558 GMT)
European investors hoping to find some clues on market direction from Asia may be disappointed today. Overall, the market mood was cautious ahead of the week's trading highlight, Wednesday's U.S. CPI report, which will put to the test the market's view that the Fed is done hiking. A regional stock benchmark eased back from a more than two-week high, the dollar was firm and Treasury yields remained elevated, despite coming off a bit in Tokyo. Crude oil and gold were basically treading water. However, the region's biggest stock markets were outliers: Japan's Nikkei rebounded sharply from losses in the previous session as strong earnings lifted the steel sector, and mainland Chinese blue chips jumped, showing little interest in data that revealed an unexpected decline in imports last month and slowing exports. Every U.S. economic indicator has taken on added importance after Fed Chair Jerome Powell signaled last week that the policy path will depend on incoming data.
And there are several other reasons that investor attention is squarely on the U.S., with the debt ceiling tussle deadlocked and banking sector troubles simmering. Lenders got a bit of respite overnight, after Treasury Secretary Janet Yellen said regulators stand ready to mobilize the same tools used in previous bank rescues. The Fed's quarterly Senior Loan Officer Opinion Survey ('SLOOS') also buoyed the mood, showing tighter lending conditions but no impending credit crunch. Still, the proviso is that the results missed the latest turmoil around First Republic and PacWest. Yellen also had a warning that failure to lift the debt limit would cause a huge hit to the U.S. economy and weaken the dollar as the world's reserve currency, reiterating that the government could be out of cash by June 1.
Key developments that could influence markets on Tuesday:
- ECB board members Philip Lane, Isabel Schnabel to speak at separate events - U.S. National Federation of Independent Business (NFIB) April survey of small businesses - President Joe Biden and Republican lawmakers meet to discuss the debt ceiling standoff
(Kevin Buckland)
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