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STOXX 600 up 0.4%
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China reopening lifts mood
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U.S. stock futures edge higher
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TERMINAL RATE REPRICING MIGHT NOT BE OVER (1051 GMT)
On December 15, probably showing dissatisfaction at the 'low' terminal rate pricing at around 3%, the ECB said there needed to be more hikes to bring rates to more restrictive levels.
Now, money markets show a peak at about 3.5% in summer 2023, but the big unknown is if the central bank will need to further tighten financial conditions.
UBS analysts crunched some numbers and found differences between the Fed and the ECB in their implied real policy rates.
"Compared to the Fed's ambition of reaching and preserving a sufficiently restrictive stance, even after the current repricing in terminal rates, real ECB policy rate would stay firmly negative in '23 and turn marginally positive by '24 and '25," Rohan Khanna, a rate strategist at UBS, says.
"All else equal and taking ECB's inflation forecasts at face value, this would call for terminal rate pricing having to rise even further in the near term," he adds.
When comparing real yields, which seems to be the ECB's preferred metric, euro area real GDP-weighted sovereign yields are negative at shorter maturities and positive beyond the 5-year point.
"While the scarcity of nominal cash European government bonds (especially Bunds) is a factor driving this 'richness', the ECB may still conclude that financing conditions are accommodative and need further tightening," he says.
EURO STOXX AT 8-MONTH HIGH (0940 GMT)
European shares got off to a positive start on Monday with many indices hitting fresh highs or trading very close to those levels.
China's reopening and optimism over slower rate hikes in the U.S. are keeping investors upbeat as the new year gets underway.
A STOXX gauge of euro zone stocks rose to its highest since end April 2022, and was last up 0.4%, while the broader pan-regional STOXX 600 equity benchmark added 0.5%, close to hitting May 2022 levels.
The UK's FTSE 100 was just a whisker below its highest since August 2018, up 0.1%, while the IBEX in Spain, whose banks are the most exposed to Brazil, lagged, down 0.1%. Here's your opening snapshot:
EUROPE SET TO EXTEND NEW YEAR RALLY (0749 GMT)
European shares are set to open higher on the second week of 2023, boosted by growing optimism over China's reopening and following Friday's rally on Wall Street on the back of jobs data easing rate hike worries.
Euro STOXX 50 futures were last up 0.6% after hitting their highest since February 2022, while FTSE and DAX futures gained 0.2 and 0.5%, respectively. In Asia, stocks rallied on hopes for a less aggressive Federal Reserve, while U.S. stock futures inched higher.
On the corporate front, focus will be on AstraZeneca after the UK drugmaker agreed to buy U.S.-based CinCor Pharma in a $1.8 billion deal to strengthen its pipeline of heart and kidney drugs. Vodafone will also be in the spotlight after saying it was set to cash in 1.7 billion euros from the sale of its Hungarian unit.
Videgoame stocks Frontier Developments and Devolver Digital are expected to fall sharply following disappointing trading updates. Keller is also seen under heavy pressure after the engineering contractor reported a financial reporting fraud in its Austral Business unit in Australia.
GOODBYE TO ALL THAT (0711 GMT)
After three years, travellers are streaming into China by air, land and sea. Long lines snaked through checkpoints at the Hong Kong border. Ferries to Macau swelled with passengers.
"Life is moving forward again!" the official newspaper of the Chinese Communist Party, the People's Daily, wrote on Sunday.
"Today, the virus is weak, we are stronger."
For now, markets are too. MSCI's Asia ex-Japan index jumped 2% to a six-month high. The yuan punched through its 200-day moving average to its highest since August, and the dollar was in retreat wherever Chinese tourists are expected.
Meanwhile another farewell came from Jack Ma, who is giving up control of fintech giant Ant Group, setting off gains in a number of Ma-related companies, principally Alibaba, as investors reckon it draws a line under regulators' attention.
Sentiment also got a boost last week from a benign blend of solid U.S. payroll gains and slower wage growth, combined with a sharp fall in service-sector activity. The twin hopes, then, of a gentler Fed and reviving China are holding recession fears at bay.
Fed fund futures now imply around a 25% chance of a half-point hike in February, down from around 50% a month ago, and focus is now an appearance by Fed Chair Jerome Powell on Tuesday and U.S. consumer price data on Thursday.
Earnings season kicks off this week with the major U.S. banks. Before then, traders are looking to German industrial output data and European unemployment figures on Monday and appearances by Bank of England chief economist Huw Pill and Atlanta Fed President Raphael Bostic later in the day.
In emerging markets, focus is on the open of trade in the Brazilian real after hundreds of supporters of far-right former President Jair Bolsonaro were arrested during an invasion of the country's Congress, presidential palace and Supreme Court.
Key developments that could influence markets on Monday:
- Fed's Bostic and BOE's Pill speak
- Japan's PM Kishida meets with France's President Macron
- Euro zone unemployment (November)
