- European stocks down more than 1%
- Bond selling continues ahead of Fed meeting
- Nasdaq futures down 1.7% after long weekend
January 18 – Welcome home to real-time market coverage from Reuters reporters. You can share your thoughts with us at [email protected]
EUROPEAN STOCKS IN GROWTH POSITION (1201 GMT)
A BofA survey shows investors view monetary tightening as the top risk to markets, beating both COVID and inflation as the top perceived risks.
Join now for FREE unlimited access to Reuters.com
Still, investor optimism remains unfazed by the central bank’s tightening plans, BofA said.
Some 81% of 374 respondents with $1.2 billion in assets under management expect European equities to rise by at least 5-10% this year.
Banking, insurance and industrials are the most overweight sectors, while technology slipped out of the top three to become underweight for the first time in four years.
“The net proportion of investors saying they are overweight banks hit a new high, with insurance hitting its highest level since 2014,” BofA said.
Investors also remain bullish on cyclicals versus defensives.
SEARCH FOR VALUE? DISCOVER THE MILAN STOCK EXCHANGE (1124 GMT)
The portfolio shift to the value segment of the stock market is well on its way to doing so through the Milan Stock Exchange, which is rich in banks and other cheap stocks that could benefit from a spike in interest rates. worldwide interest.
UBS has taken a fresh look at Italian equities and remains overweight, although the presidential election this month could heat up the political climate, creating turbulence.
“Italy is one of the most value-exposed European markets – a style that we continue to expect to perform well over the coming months,” say economists and strategists at the Swiss investment bank headed by Felix. Huefner.
In addition to this, they also highlight:
- Attractive valuations with a dividend yield 50% higher than Europe and a relative P/E close to a 20-year low
- Earnings momentum against broader European market at 4-year high
- The performance of Italian equities is normally highly correlated to that of European banks and more recently has lagged somewhat
What about political risks?
“Short-term political concerns should be watched as equity performance moves closely with the BTP-Bund spread (a reflection of macro and political jitters). As things stand, our macro team’s forecast d ‘a 150 basis point spread over the medium term probably looks manageable for the equity market,’ they say.
BOJ? NOT SO HAWKISH AFTER ALL (1120 GMT)
As investors focus on future central bank decisions, a hawkish outcome from the Bank of Japan’s policy meeting could have put upward pressure on bond yields globally.
But, according to John Vail, chief global strategist, Nikko Asset Management, overall the BOJ was “relatively dovish”, even if “coupled with a moderately more positive outlook for the economy”.
“The BOJ also cut its GDP forecast for the year 2023 a bit to 1.1%, which is a disappointment, but that’s Japan’s natural growth rate, so it’s not too surprising. “, he says.
“In summary, he raised his assessment of the economy, but also said economic risks were on the downside, likely due to worrying oil prices and geopolitics,” he adds.
“The policy update actually turned out to be less eventful,” MUFG analysts say, after mentioning speculation that the BOJ is debating a possible rate hike if inflation picks up.
The Bank of Japan raised its inflation forecast on Tuesday but said it was in no rush to change its ultra-loose monetary policy as rising prices stoke speculation that it could soon signal a change in its decade-old revival experience. Read more
STOXX DEEPER IN THE RED FOR 2022 (0920 GMT)
Selling pressure looks quite intense across the board at the European open, sending the STOXX 600 deeper into deficit territory so far this year as rising rates disrupt the mood.
The benchmark pan-European equity index slid about 1.3% in morning trading and was down about 2% from the end of 2021.
Technology (.SX8P) led the declines, down more than 2%, while Energy was the only sector in the dark, rising 0.2% as crude prices hit highs of 7 years, as you see in the snapshot:
TECHNICAL PROBLEM (0754 GMT)
Nasdaq futures were down nearly 1% on Tuesday, making it likely the tech-heavy index will add to its year-to-date losses of around 4.5%. After rising for 12 of the past 13 years, it is under heavy pressure from the prospect of higher interest rates and bond yields, more so than the broader S&P 500 index or global equity benchmark. from MSCI.
The 4.5% loss masks deeper falls – 29 stocks have already lost 10% or more this year, according to Capital Economics.
The positioning of Nasdaq futures has changed dramatically, Citi analysts point out, noting that $2 billion of remaining long positions are deep in the red.
Those investors will look nervously to bond markets, where two-year US Treasury borrowing costs topped 1% for the first time since February 2020. In Europe, German 10-year yields are poised to soar. above 0% for the first time. times since mid-2019.
Inflation is front and center as crude oil prices reach seven-year prices. This is good news for some – the Bank of Japan earlier signaled that the country is finally coming out of deflation sustainably – but the bond sell-off is setting the stage for a dismal trading session; most Asian markets fell and Europe looks set to open weaker.
All eyes are now on central banks. The US Federal Reserve is now more or less poised to start raising interest rates from March, Canada could act as early as next week, while UK labor data, which topped Tuesday’s forecast , make it virtually certain that the Bank of England’s Feb. 2 meeting will yield a hike.
Key developments that should further guide markets on Tuesday:
-BOJ raises price outlook but maintains ultra-simple policy read more
– UK employers add record number of jobs read more
-Brent surges to over 7 on Middle East tensions, tight supply
-Meeting of EU finance ministers on minimum corporate tax, recovery fund and EU budget
-ECB Vice-President Luis de Guindos speaks
– The Governor of the Banque de France, François Villeroy de Galhau, takes the floor
-Riksbank Governor Stefan Ingves speaks
-US profits: BNY Mellon, Goldman Sachs, Charles Schwab
EUROPE IS ON THE POINT OF FALLING AS THE BUND TURNS TOWARDS ZERO (0745 GMT)
As bonds sell off and German 10-year yields near zero, equities struggle globally as traders bet the Fed could tighten policy more quickly to tame inflation.
So after the losses in Asia, European stocks are expected to follow with stock index futures down about 0.3%, while US futures pointed to heavy losses for tech stocks later.
Also in Europe, investors will be watching the tech space (.SX8P), a sector that has flourished on the back of ample central bank stimulus that boosted valuations, and the COVID-19 pandemic.
Meanwhile, oil continues its rally with Brent now at a 7-year high, which could possibly help energy stocks further.
Join now for FREE unlimited access to Reuters.com
Our standards: The Thomson Reuters Trust Principles.