* U.S. indexes down; Nasdaq, chips, small caps lead declines
* Tech is weakest major S&P sector; energy is sole gainer
* Dollar, bitcoin, gold, crude all green
* U.S. 10-Year Treasury yield ~1.75%
Jan 25 - 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
BANKING ON BANKS IN 2022 (1233 EST/1733 GMT)
One of 2020's biggest laggards, the financial sector
, had a bright 2021. With a more than 30% gain, it
notched its second-best annual rise of the post-global financial
crisis era.
In her latest market commentary this week, Saira Malik,
chief investment officer, who leads Nuveen's equities investment
council, says that government stimulus, household savings rates,
consumer and commercial credit quality, and a resilient economic
backdrop have provided fertile ground for the financial sector,
especially for the banking industry.
Recently, however, Malik notes that a handful of the largest
U.S. financial institutions reported fourth-quarter earnings
which included 2022 guidance that "revealed
higher-than-anticipated costs and expectations of further
expense inflation, driven primarily by rising wages."
While these results have added to early 2022 equity market
volatility, Nuveen remains "fairly constructive" on bank
fundamentals. Malik says that higher interest rates, improving
loan growth and abundant excess capital should act as catalysts
for further gains this year.
Regarding prospects for higher rates, as markets prepare for
Fed hikes in 2022, Nuveen estimates that an increase of 100
basis points across the yield curve could potentially boost
industry earnings per share by 15%-20%, on average, once these
higher rates are fully realized in banks' earnings.
Malik adds that although bank valuations, on both a P/E and
P/B basis, appear a bit elevated vs their own history, she
thinks they remain attractive compared to the broader market.
"Banks have historically traded at a median discount of
roughly 24% to the S&P 500 as a whole (based on next 12 months’
P/E), a margin that currently stands at 34% — still a an
intriguing investment opportunity from a relative value
perspective."
Year-to-date, the SPSY is off around 2.8% vs a drop of more
than 9% for the S&P 500 index. On Tuesday the financial
index, down 0.7% was also outperforming the benchmark S&P, down
2%. But most major banks were falling.
(Terence Gabriel)
*****
EUROPE PULLS OFF A 'DAMAGE-CONTROL' SESSION (1210 EST/1710
GMT)
The pan-European STOXX 600 pulled off a 0.7% gain at the
close of a choppy session which is far from making up for its
3.8% fall yesterday.
The jury is still out on whether this is a dead-cat bounce
but it's quite rare for European stocks to finish the day in
positive territory when the S&P 500 and the Nasdaq are losing
well over 2%.
Sure, European investors completely missed out on Wall
Street's spectacular reversal on Monday, but all in all, they're
keeping their edge on their U.S. peers.
The STOXX 600 is down 5.8% since the beginning of the year,
which compares favorably with the current 9.8% drop of the S&P.
Still, the tension between the West and Russia over Ukraine
is bound to hit bourses on the continent harder than on the
other side of the Atlantic and the stress around the pace of the
Fed's tightening cycle is palpable even across the euro zone.
One area where European stocks are suffering more than their
U.S. peers is in the tech space.
The European index is now just a whisker from bear-market
territory with a 19.5% fall from November highs.
The S&P 500 tech sector by comparison is down
around 15% from its December peak.
(Julien Ponthus)
*****
SYSTEMATIC FUNDS YET TO REALLY JOIN THE SELLING PARTY (1136
EST/1636 GMT)
For all the red in the stock market these last few sessions,
the selling from systematic strategies such as volatility
control funds, has been relatively small given the violent price
action, BNP Paribas derivatives strategists said in a note on
Tuesday.
"When we have previously seen a spot market correction of
similar degree, we have typically seen significant selling flow
from systematic strategies," BNP strategists led by Greg Boutle,
said.
"We estimate selling flows associated with the recent
de-risking have been much lower in recent weeks vs. previous
equity market selloffs," he said.
BNP estimates, volatility control funds have shed about $13
billion in U.S. equities over the past week and expects another
$5 bln of selling from these types of funds on Tuesday.
Vol control funds often take buying and selling signals from
realized or historical volatility levels. Despite the Cboe
Volatility index jumping to a more than 1 year high S&P
500 1-month volatility at about 15 is 5 points shy of its
late-December peak. On Tuesday the VIX was last up 2.78 points
at 32.68.
"This has been influenced by the higher starting level for
realized volatility heading into the de-risking, as well as the
trending nature of the selloff," the strategists wrote.
The gulf between SPX 30-day realized and implied volatility
stands at 11.5 points, the widest since October 2020.
So long as realized volatility stays in the mid-to-high
teens, the strategists expect little additional selling pressure
from systematic strategies, they said.
(Saqib Iqbal Ahmed)
*****
CONSUMER CONFIDENCE, CASE-SHILLER: CONSUMERS GROW COOL, HOME
PRICES STAY HOT (1045 EST/1545 GMT)
A data diptych unveiled on Tuesday showed that the ongoing
effects of supply challenges - inflation, affordability, rising
interest rates - are dampening consumer spirits yet failing to
put out the fire of a red-hot housing market.
The American consumer dimmed slightly at the dawn of 2022.
The Conference Board's Consumer Confidence index
shed a modest 1.4 points this month to 113.8, a
rosier print than the 111.8 analysts expected.
The usual suspects - inflation and pandemic nerves - were
behind the headline dip.
"Concerns about inflation declined for the second straight
month, but remain elevated after hitting a 13-year high in
November 2021," writes Lynn Franco, senior director of economic
indicators at The Conference Board. "Concerns about the pandemic
increased slightly, amid the ongoing Omicron surge. Looking
ahead, both confidence and consumer spending may continue to be
challenged by rising prices and the ongoing pandemic."
While spending intentions were strong and the 'present
situation' measure improved, this was offset by the
'expectations' component's decline, widening the gap between the
two - extending a worrying trend which, historically, presages
recession.
As seen in the graphic below, that wide disparity is often a
harbinger of economic contraction:
Separately, monthly home price growth unexpectedly gained
momentum in November and annual home price inflation came in
hotter than consensus.
The S&P Case-Shiller 20-city composite posted a
monthly reading of 1.2%, 30 basis points higher than the mean
projection and an acceleration from October's upwardly revised
1% gain.
Year-on-year, the composite gained 18.3% a slight
deceleration from the prior month's 18.5% but hotter than the
18.0% analysts anticipated.
"We continue to see very strong growth at the city level,"
writes Craig Lazzara, managing director at S&P DJI. "All 20
cities saw price increases in the year ended November 2021, and
prices in 19 cities are at their all-time highs."
But while mortgage interest rates, rising in tandem with
U.S. Treasury yields, could eventually curb demand, they could
prompt would-be homebuyers to jump on the low-rates train before
it leaves the station, in spite of soaring home prices.
Rubeela Farooqi, chief U.S. economist at High Frequency
Economics says "a desire to lock in mortgage rates as the Fed
tapers/tightens could provide a boost to sales in the near
term."
But that won't last forever.
"We expect some slowing in home price inflation in the
months ahead as higher price and mortgage rates erode
affordability," says Nancy Vanden Houten, lead economist at
Oxford Economics.
Every city in the composite posted double-digit annual home
price growth. Phoenix was once again the star, its prices up
32.2%, with Tampa and Miami capturing silver and bronze.
The graphic below shows annual growth of the 20-city
composite against the National Homebuilders Association gauge of
potential homebuyer traffic.
Wall Street resumed its January decline, which was
unexpectedly interrupted by Monday's freak, late-session rally.
All three major U.S. stock indexes were sharply lower as
Powell & Co sit down for their two-day FOMC policy meeting.
(Stephen Culp)
*****
RED TIDE QUICKLY RETURNS (1005 EST/1505 GMT)
Wall Street's three major indexes are lower on Tuesday with
technology stocks leading the declines as investors wait for the
outcome of the Federal Reserve's policy meeting and keep their
eyes on the latest news from Russian/ Ukrainian tensions.
NATO said on Monday it was putting forces on standby, while
the U.S. Department of Defense in Washington said about 8,500
American troops were put on heightened alert and were awaiting
orders to deploy to the region, should Russia invade Ukraine.
Much like Monday morning's action, the outperformers are
more defensive groups such as utilities and real
estate, while the biggest losers include growth
sectors such as technology and communication services
as well as cyclical sectors.
Of course investors may also be wary going into Tuesday's
session after Monday's dramatic turnaround when the S&P 500
was on correction watch and the small-cap Russell 2000
was on bear watch, but both ended higher with the help of
aggressive dip buyers.
A few explanations for Monday's wild swings include U.S.
stocks becoming too oversold as measured by the VIX, a
modest shift in Fed Funds futures with the odds of just 3 rate
hikes this year moving slightly higher, according to DataTrek
co-founder Nicholas Colas who also wrote that retail investors
were "out in force."
With the Federal Reserve meeting this week, with
geopolitical risks remaining and with multiples still high,
Colas says that despite Monday's impressive turnaround he is
"cautious near term on U.S./global stocks," but bullish for the
medium and long term.
Here is your early Tuesday trading snapshot:
(Sinéad Carew)
*****
FRENCH BANKS: AIMING FOR BOOK VALUE (0925 EST/1425 GMT)
Jefferies just released a pretty bullish deep dive into the
three big French listed banks and according to its analysts,
there's a "massive re-rating potential" at hand.
"We think the market under-estimates the RoTE (return on
tangible equity) potential of French banks in a 2024 horizon",
they write, adding that the country's lenders are set to enjoy a
sharp reduction in payments to the European Union's Single
Resolution Fund.
French banks are currently trading well below price to
tangible book value (PTBV) with Societe Generale at 0.5, BNP
Paribas at 0.7 and Credit Agricole at 0.9.
According to Jefferies' analysts, that could evolve for the
better in the coming years.
"We expect French banks' shares will significantly re-rate
towards TBV (and above) once investors realize that French banks
can sustainably achieve a double-digit RoTE", they conclude.
Among the other factors which might help boost their shares,
are returns to shareholders seen at 7 to 8% through dividends
and buybacks.
Momentum is also expected to be favorable for French banking
stocks as they prepare to unveil strategic updates this year.
(Julien Ponthus)
*****
DESPITE NASDAQ'S MONDAY REVERSAL, INTERNALS STILL REELING
(0900 EST/1400 GMT)
The Nasdaq Composite staged a stunning reversal on
Monday. The tech-heavy index erased a near-5% collapse to close
up around 0.7% on the day.
On the plus side, a number of measures of Nasdaq internal
strength may have reached, or be near to, washed-out levels.
That said, they still have work to do to prove that they have
stabilized.
The Nasdaq McClellan Summation, which is based on advancing
and declining issues, improved off its low of the day, but it
still closed down for an eighth-straight session, at -5,987. It
has yet to break its March 2020 trough, at -6,207, but it
remains below its 10-day moving average.
The Nasdaq New High/New Low (NH/NL) index ended at 12.6%, or
just a tick above its 12.5% December 6, 2021 trough:
It now remains to be seen if this is a sufficiently
washed-out reading for this measure, but it still has room to
fall to reach previous major lows.
Of note, it bottomed on March 23, 2020 with the Nasdaq's
pandemic-crash low, at 1.2%. It hit a low of 1.6% just two
trading days (tds) after the market's December 24, 2018 trough.
In early 2016, the NH/NL index bottomed on January 21 at
2.4%. It then converged bullishly over the next 15 tds into the
Composite's final low.
In 2011, this measure fell to as low as 3.5% on October 4,
or one trading day after the Composite's October 3 bottom.
Its lowest reading ever, using Refinitiv data back to
mid-1995, occurred during the Financial Crisis. On November 24,
2008, it fell to 0.5%. It established a slightly higher trough
at 0.9% with the Nasdaq's major low on March 9, 2009.
Meanwhile, amid heightened volatility, the Nasdaq looks to
kick off Tuesday's session on the back foot again. CME e-mini
Nasdaq 100 futures are down around 2% in premarket
trade.
(Terence Gabriel)
*****
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)