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STOXX 600 down 0.6%
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Major indices in the red
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U.S. markets closed for Juneteenth holiday
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ADDING EQUITY ON DISINFLATION, SHORT SQUEEZE RISK - TS LOMBARD (1050 GMT)
Strategists at TS Lombard are updating their model portfolio, increasing exposure to equities and reducing fixed income & alternatives, while maintaining a "slightly defensive stance".
"Since last month, the risks of an early U.S. recession have increased ... but disinflationary forces are getting stronger," TS Lombard strategists, led by head of research Andrea Cicione, write.
Although a recession advocates for risk reduction, the latter is a mitigating factor, Cicione and co. say.
"The possibility of a melt-up in equities in the latter stages of the current bull market is increased by short positioning by both real money and leveraged investors, at a time when sentiment is being boosted by advances in AI," they write.
"Thus, the risk of a short squeeze is material."
TS Lombard has decided to add 3% to their equity exposure, going neutral, to minimise the risk of being caught on the wrong side of an equity rally, while also adding to emerging market bonds.
To fund these increases, the consultancy reduces exposure to developed market government bonds, IG corporate bonds and precious metals.
(Samuel Indyk)
MORE TO COME AS BEAR CAPITULATION DRIVES RECENT RISK RALLY (0948 GMT)
Stock markets are taking a breather on Monday after a rally which has seen the DAX close at a record high on Friday, the Nasdaq surge almost 38% year-to-date and the S&P 500 enter a technical bull market.
Ben Laidler, global markets strategist at eToro, says positive fundamentals have driven the rally but poor investor sentiment has also been important.
"We are now in a positive ‘pain trade’, as previously bearish investors capitulate and chase stocks higher," Laidler writes.
"Poor sentiment has had two benefits, protecting on the downside and is now magnifying the upside."
Laidler says this "bear capitulation" can be powerful and last for a while before sentiment becomes too bullish and the dynamic reverses.
Meanwhile, Jefferies chief financial economist Europe Mohit Kumar says they are retaining their small long position in risky assets amid the recent buoyant mood.
"There is little in terms of data between now and the U.S. payrolls which would dent the recent optimism," Kumar says.
"We still struggle to see significant upside from current levels, but believe that the path of least resistance is for modestly higher risky assets."
(Samuel Indyk)
CAUTIOUS START FOR EUROPE (0811 GMT)
European equity markets are taking a breather on Monday after a strong performance last week that saw Germany's DAX close at a record high and broader European shares notch their biggest weekly gain in two months.
The pan-European benchmark STOXX 600 index is down around 0.6%, while the DAX , CAC 40 and FTSE 100 are down 0.3%-0.6%.
"Investors are lacking Monday motivation today, as caution returns amid worries about global growth," says Susannah Streeter, head of money and markets, Hargreaves Lansdown.
"European indices have opened lower ... as investors mull what's ahead for the path of interest rates, given the stubbornness of inflation, while concerns persist about China's recovery losing steam."
Shares in Franco-German lab supplies maker Sartorius are down around 13% after the company cut its margin and sales forecast.
Aerospace and Defence stocks are a rare bright spot, as attention falls on Paris, where the world's largest aviation trade show is kicking off, with airlines going into the event with growing demand expectations.
Here's your opening snapshot:
(Samuel Indyk)
MONDAY BLUES FOR EUROPEAN FUTURES (0635 GMT)
European equity futures are struggling on Monday, consolidating after major indices clocked their biggest weekly gain in two months last week.
Euro STOXX 50 futures are down 0.6%. Futures on Germany's DAX are also losing 0.6% after the index closed at a
record high
on Friday.
With a U.S. market holiday and a lack of major data releases in Europe, focus is falling on geopolitics as U.S. Secretary of State Antony Blinken wraps up his
trip to China
, where a meeting with Chinese President Xi Jinping might be in the offing.
In company news, AstraZeneca will be in focus after the Financial Times reported the drugmaker is drafting a plan to
spin off its China business.
Attention will also be on aerospace and defence names, as the week-long Paris Airshow kicks off.
(Samuel Indyk)
READY FOR MORE RATE HIKES, AND ONE CUT (0554 GMT)
It's been predictably subdued in Asia as a U.S. holiday provides a convenient excuse for stocks to consolidate recent hefty gains before a bevy of central bank meetings this week. Most indices are down, with the Nikkei off modestly having climbed 22% over a 10-week streak to hit 33-year highs.
S&P 500 futures were also flat having risen for five weeks in a row, while the NASDAQ has notched eight weeks of gains. Those rallies are narrowly based, though, with just nine large-cap stocks making up 30% of the S&P 500. It's hard to call the index a "diversified" investment any more.
Markets are watching U.S. Secretary of State Antony Blinken's visit to Beijing, though you know expectations are low when it's newsworthy that a Chinese diplomat deigned to shake his hand.
Among currencies, the yen downtrend remains alive and well as the euro and dollar both make new highs, albeit by just a few ticks. Further losses look likely unless and until the Bank of Japan takes another step toward tightening, which many Western analysts see as possible in July. Governor Kazuo Ueda, however, seemed to set a high bar for a move last week by saying his outlook for inflation would have to shift "sharply" to justify a move.
The coming week is also jammed with central bank action, led by China on Tuesday where prime loan rates are expected to be cut by 10 basis points. That might be pushing on string given mortgage rates have already fallen markedly and lower rates only eat into the return on household savings. Markets are really hanging on for more fiscal stimulus to revive growth, as it has so often in the past.
Federal Reserve Chair Jerome Powell appears before lawmakers on Wednesday and Thursday and may again try to convince markets that two more quarter-point rate hikes are really, honestly, cross-my-heart likely.
Futures seem unimpressed with just 21 basis points of tightening priced in by September, though one final hike in July is rated as a decent 70% chance.
In contrast, markets are baying for the Bank of England to hike when it meets on Thursday, the only question being by 25 or 50 basis points. Futures lean toward the smaller move to 4.75% but also have rates rising to at least 5.75% given stubborn inflation and surging wages.
Gilt yields have already hit 15-year highs, causing havoc in the UK mortgage market and lifting the government's already astronomical borrowing costs.
Rate hikes are also expected in Norway and Switzerland this week, perhaps by 50 basis points, though that will likely pale in comparison to Turkey's central bank as some analysts see rates rising from the current 8% to as much as 25%.
Key developments that could influence markets on Monday:
- ECB board member Isabel Schnabel, ECB Vice President Luis de Guindos and ECB chief economist Philip Lane are all speaking
- U.S. stock and bond markets are closed, while the NAHB housing market index for June is due
(Wayne Cole)
