LIVE MARKETS Europe's Q4 expectations: steady as they go

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  • STOXX 600 ticks up
  • Luxury stocks lift equity market
  • Germany's bund yield goes positive
  • UK inflation surges
  • Wall Street futures back in the black

Jan 19 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

Q1 EXPECTATIONS: STEADY AS THEY GO (1230 GMT)

There's been a pretty nice batch of Q4 earnings this morning in Europe which stood in contrast with the doom and gloom brought by Goldman Sachs' quarterly update on Wall Street yesterday.

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Richemont, Burberry and Pearson are shining and are contributing to keep optimism flowing before Europe's earnings season begins in earnest next week.

The latest data from Refinitiv seems to back the upbeat mood with analysts' earnings growth estimates for Q4 stabilizing at around 49% after a few weeks of decrease.

That's about twice the estimate for the S&P 500 for currently stands at about 23%.

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(Julien Ponthus)

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BETTING AGAINST THE NASDAQ 100 (1216 GMT)

With rate hike bets on the rise and the retail crowd showing first signs of buy-the-dip fatigue, betting against the Nasdaq 100 is becoming a more popular strategy, it seems.

One way to gauge the heat is to look at inverse ETFs, and turns out that the ProShares UltraPro Short QQQ (SQQQ.O), which is built to get three times the inverse of the daily performance of the Nasdaq 100, is seeing record trading turnover.

In the week to Jan. 14, SQQQ saw volume exceed 275 million units for the first time on record, while five-day average daily volumes have risen to twice as much the 90-day average.

snapshot

More on betting against tech here: Antithesis of ARK innovation ETF enjoy rally read more

(Danilo Masoni)

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THE THIN RED (MOVING AVERAGE) LINE (1110 GMT)

World stocks are now flirting with a dangerous thin red line.

U.S. tech stocks (.NDX) broke below their 100 day moving average last week and closed below the 200 day benchmark yesterday.

Last session also saw the wider U.S. markets (.SPX) and world stocks (.MIWO00000PUS) drop below the 100 day moving average.

While these major indices have flirted briefly with that level in the past year or so, they haven't conclusively stayed below that line for longer periods.

The last time that happened was in the first quarter of 2020 when the pandemic slammed into markets. World stocks lost 30% of their value in less than a month before rebounding later.

In that sense, a further drop below the 100-day moving average globally could potentially mean more pain in store for stock punters who have already got off to a rocky start this year losing $2 trillion in market cap value.

US stocks

(Saikat Chatterjee)

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DISCOUNTING A TOO HAWKISH FED? (1039 GMT)

With financial markets now wondering whether they went too far in pricing the incoming tightening from the Federal Reserve, what's to expect following next week’s meeting remains highly uncertain.

The dollar was able to regain ground against the euro “as hardly anyone is likely to have the guts to go into the FOMC meeting with dollar shorts,” Commerzbank forex analysts say.

But expectations have already run a long way.

It is difficult for the market to gauge whether it will be surprised they add, mentioning “thoughts making the rounds on the market that the Fed might hike the key rate by 50bp in March.”

Unicredit analysts point out to talk “that the Fed may prove very aggressive on the rates front in March, and might even consider an early kick-off of quantitative tightening” (QT).

“These expectations may prove exaggerated,” they say.

UBS analysts say that “the basic reason the FOMC does not need to raise rates by 50 bps is that they can signal a higher path, tighten financial conditions further and do so in a more methodical and less disruptive way.”

UBS expects the QT to start in March.

The chart below shows Treasury yields rising to highs not seen since January 2020.

USyields

(Stefano Rebaudo)

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LUXURY STOCKS TO THE RESCUE! (0840 GMT)

Things were looking quite ugly about an hour ago when European futures were deep into the red following a rough session on Wall Street where banking stocks, courtesy of Goldman Sachs' earnings, and tech stocks got hammered.

But European equity markets have avoided a sell-off so far thanks to luxury stocks which are to the old continent's investors what FAANGS are, or were, for U.S. traders.

Shares in Switzerland's Richemont are leading the STOXX 600 and up a whopping 7% after the world's second-largest luxury group reported string demand for jewellery and watches.

That had a positive effect across the sector and France's heavyweights, LVMH, Kering and Hermes are up and lifting the Paris CAC 40 benchmark above the floatation mark.

The UK's Burberry is another strong performer, rising close to 5% as the luxury brand said annual profit would beat market expectations.

The retail sector (.SX86P) was also on a roll, rising over 2% with Spain's Inditex leading the pack after Goldman Sachs upgraded the stock due to resilient earnings and cashflow.

Marks & Spencer, Zalando (ZALG.DE) and Kingfisher (KGF.L) were all rising over 2%.

The tech (.SX8P) sector is also showing signs of resilience, losing just 0.1%, a better fate than that of the Nasdaq last night.

The start of the earnings season was also pretty positive for Pearson shareholders who saw the stock jump 5% after the education group raised its forecast.

(Julien Ponthus)

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GOLDMAN SACHS ADDS ANOTHER LAYER OF STRESS (0748 GMT)

For all the turmoil across financial markets yesterday, the Nasdaq creeping dangerously near correction territory and closing below a key 200-day moving average probably came as the least surprising feature for investors.

After all, dumping expensive tech and growth stocks when bond yields rise as the Federal Reserve embarks on an interest hike cycle is seen as basic stock market trading 101.

Going overweight on banking stocks on tighter monetary policy tightens is another common trade but that one backfired spectacularly when Goldman Sachs (GS.N) missed quarterly profit expectations and plunged 7% as rising expenses bit into its fourth quarter earnings. read more

Traders are now waiting for Bofa (BAC.N) and Morgan Stanley (MS.N) to update the market today and see whether the key theme of this new earnings season might just be rising costs, including pay, denting profits across all industries.

With European and U.S. stock futures down over 0.5%, it's fair to say there's palpable uncertainty on that front as other structural forces of this tightening cycle are only gaining strength in these early days of 2022.

The dollar is pumped up against rival currencies with benchmark U.S. Treasury yields trading on two-year highs as the Federal Reserve shows signs of being more aggressive in tackling inflation while in Europe, Germany's 10-year bond yield rose above 0% for the first time since May 2019.

Moreover, latest data showed British consumer price rose to 5.4% in December, its highest since March 1992, a level which might encourage the Bank of England to speed up tightening. read more

Even the cautious Bank of Japan warned investors that inflation may accelerate faster than expected if raw material costs continue to spike. read more

This came as oil prices are up for a fourth day to levels last seen in 2014 as an outage on a pipeline from Iraq to Turkey increased concerns about an already tight supply outlook. read more

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Key developments that should provide more direction to markets on Wednesday:

-UK inflation rises to highest in nearly 30 years read more

-German harmonised inflation +5.7% y/y in December

US housing starts

US 20-year treasury auction

US earnings: Bofa, State Street Morgan Stanley, Proctor and Gamble, Bancorp, Alcoa

Central Banks: BoE Governor Bailey and Deputy Governor Cunliffe speak

Swiss National Bank Vice Chair Fritz Zurbrugg, speaks

(Julien Ponthus)

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