LIVE MARKETS Europe: more corrections than meet the eye
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EUROPE: MORE CORRECTIONS THAN MEET THE EYE (1320 GMT)
It's starting to look very much like a selloff across European equity markets and the STOXX 600 is now down 2.1% at a new session low.
We're on course for a monthly fall of 5.6% and a 7.1% drop from the record high the pan-European benchmark enjoyed on January 4.
An optimistic trader would say we're still well below the 10% drop which typically defines a corrections but actually, under the surface, many sectors are.
In comparison with their recent highs, Construction & Materials and Industrial Good & Services are down over 13%.
Financial Services are 12.8% down and Autos and Chemicals are just below 10%. It's also worth mentioning Personal & Household Goods as well as Food & Beverages down close to 9%.
Talking about the worse performing sectors, Travel & Leisure is down close to 19% from September while of course Tech is well into grizzly territory with a 21% slump.
Another way of looking at the market stress is the 7 trillion dollars wiped off in market cap this month:
(Julien Ponthus)
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TAKE FIVE, AND ALL THAT MONETARY JAZZ (1225 GMT)
It seems a growing list of economists are taking the view that the Fed will be humming to the tune of Dave Brubeck's legendary "Take five" jazz piece as it tightens monetary policy this year.
Prior to Powell's hawkish tone on Wednesday, rate futures indicated four rate increases for 2022 but it's now creeping dangerously towards five.
In a note commenting on the Fed policy meeting, Wells Fargo economist also joined the Take Five fan club.
"We now think it is likely that the Committee will hike rates by 25 bps at the March 16, May 4 and June 15 policy meetings", they wrote, adding that two other hikes would likely take place in in September and December.
"Previously, we had anticipated that the FOMC would pause in May", but that's no longer the case in view of the shift in the Fed's music.
Deutsche Bank strategists also expect policymakers to raise interest rates five times while BNP Paribas expects as much as six from four earlier.
Others think the Fed's hawkishness could express itself through a 50 basis point hike in March.
Looking further ahead, BofA analysts are expecting the tightening to press on harder than currently expected.
"The market is pricing fewer than seven Fed rate hikes over the coming three years, while our economists expect nine hikes, with the risks skewed to even more hikes," they wrote in a note.
Here's the chart from yesterday's story rounding up how economists were rushed to reassess their Fed tightening bets:
See:
Banks scramble to change Fed rate calls after hawkish shift read more
(Julien Ponthus and Saikat Chatterjee)
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EQUITIES: A BEARISH VIEW (1145 GMT)
Equities fell recently on a bearish cocktail of geopolitical tensions over Ukraine, doubts about the strength of the economic recovery and the Fed's faster than expected monetary tightening.
BofA has no doubts about how these factors will affect stocks in the future and expects “further downside for European equities, with risks to our projections skewed to the downside.”
They see the Stoxx 600 (.STOXX) at 430 points by year end.
“The market is pricing fewer than seven Fed rate hikes over the coming three years, while our economists expect nine hikes, with the risks skewed to even more hikes,” they add.
The Fed's move from balance sheet expansion to balance sheet reduction this year will put further upside pressure on real bond yields, the discount rate for global equities, they argue.
They see bad news coming even from the earnings front while a critical reason for the consensus bullishness on European equities is the hope for support from strong corporate earnings.
Their EPS analysis suggests that the Stoxx 600 12-month forward EPS has peaked and is ready to decline by 5% into year-end on the back of slowing global growth and increased margin pressures.
(Stefano Rebaudo)
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IT'S OFFICIAL: EUROPEAN TECH IS IN A BEAR MARKET (1020 GMT)
It's been a long time coming but here it is, the European tech index is down more than 20% from its November highs and has therefore officially entered a bear market.
Of course that might come as little surprise to investors as sell-side analysts have been warning for months now that growth stocks are bound to take a hit during a Federal Reserve tightening cycle.
But it's worth noting that the damage to tech has probably been much milder than initially feared thanks to encouraging results from Microsoft and Apple.
Anyhow, here's the long slide of European tech since November:
(Julien Ponthus)
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RISK-OFF MODE (0845 GMT)
European bourses are in the red, as the prospect of interest rates hikes in the U.S. and tensions between the Western and Russia over Ukraine dampened risk-sentiment.
The pan European STOXX 600 (.STOXX) index is down 0.8%, with auto shares (.SXAP) leading the losses down 1.7%, followed by the bank sector (.SX7P), down 1.6%.
Positive company results capped some losses, with shares in LVMH (LVMH.PA) rising after the world's largest luxury goods conglomerate reported an acceleration in its fourth quarter sales growth. read more
(Joice Alves)
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TRANSATLANTIC SPLIT (0825 GMT)
After U.S. Q4 GDP came in at an annualised 6.9%, the highest since 1983, could Europe go one better? Yes and no.
France just posted data showing the economy in 2021 expanded at the strongest rate in 52 years at 7%. Sweden too beat expectations at 6.4%. German growth meanwhile is expected at a more sedate 2.7%.
The wait is on.
In any case, not much relief for the euro, which is heading for its biggest weekly loss against the dollar since last June, and could tumble below $1.11 for the first time since mid-2020. The promise of an aggressive Fed rate rise campaign and a slew of buoyant economic data have boosted the dollar index almost 2% so far this week.
As usual, reasons for the U.S.-Europe split can be seen in "real" bond yields. After stripping out inflation effects, U.S. 10-year yields now stand at minus -0.5%, double end-2021 levels, while its German equivalent languishes around -1.8% .
While Wall Street ended with losses again on Thursday, Apple (AAPL.O) posted record holiday-quarter sales, having skirted the supply chain problems that have bedevilled rivals. Shares jumped 5% after-hours, but with the world's biggest company down almost $400 billion from peak value, will more buyers emerge?
Aside from the European growth, markets will await core U.S. PCE, the Fed's favoured inflation gauge, to see if price growth is peaking. Expectations though are for a pick-up to 4.8%, which would be the highest reading since 1983.
As for stock markets, futures are again pointing north after a bounce across Asia. Here at least Europe appears more resilient, having managed to end firmer on Thursday. The pan-European STOXX index is down 3.5% this year (-9% at the S&P 500) while Britain's FTSE is actually in the green.
Key developments that should provide more direction to markets on Friday:
-Italy's UniCredit reports better-than-expected full-year revenues and profit read more
-Portuguese snap election points to rocky road ahead read more
-Euro zone consumer and business sentiment
-Emerging markets: Colombia expected to raise interest rates
-U.S. core PCE index Dec/University of Michigan inflation expectations
-U.S. earnings: Chevron, Caterpillar, Colgate Palmolive
-European earnings: Caixabank, Unicredit, H&M, Electrolux, Volvo, Telia, Svenska Celulosa
(Sujata Rao)
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STOXX 600 SET FOR WORST MONTH SINCE OCTOBER 2020 (0730 GMT)
European stocks are heading to their worst month since October 2020 after weeks marked by the prospects the Federal Reserve will raise interest rates and mounting geopolitical tensions in Ukraine.
Russia said it was clear the U.S. was not willing to address its main security concerns in their standoff over Ukraine, but both sides kept the door open to further dialogue. read more
While the Fed on Wednesday said it is likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month in what U.S. central bank chief Jerome Powell pledged will be a sustained battle to tame inflation.
While traders also digest a new batch of earning reports, European futures are mixes. Euro STOXX 50 futures if flat, DAX futures are down 0.26%, while FTSE futures are up 0.1%.
(Joice Alves)
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