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RECESSION IN THE EURO ZONE? NOT ACCORDING TO GOLDMAN SACHS (1215 GMT)
Economists at Goldman Sachs are no longer expecting the euro area to enter a technical recession in 2023.
The U.S. investment bank has raised its forecast for euro zone growth this year to 0.6% from -0.1% as the activity outlook has "improved notably" in recent weeks.
"The incoming data has remained surprisingly resilient—especially the hard industrial data —and the latest survey data have risen significantly," Goldman Sachs economists led by Sven Jari Stehn say in a research note.
Goldman also highlights a sharp fall in natural gas prices which should lead to a faster deceleration in headline inflation and China reopening earlier than expected for its upgraded growth view.
On a national level, Germany and Italy are expected to have weaker growth than France and Spain given Germany and Italy were more reliant on Russian gas, while France and Spain have more diversified energy sources.
Goldman has also raised its UK growth forecast but still sees a technical recession this year.
The British economy is now forecast to only shrink by 0.7% this year, compared to Goldman's previous estimate of a 1% contraction.
"As a result, we look for a more pronounced downturn in the UK than the euro area, with a cumulative decline in real GDP of 1.2%," GS says.
"That said, the expected UK recession is shallow by historical standards, given ongoing fiscal support and falling gas prices."
Goldman Sachs sees the ECB raising rates by another 125 basis points by May, taking the deposit rate to 3.25%, while the BoE is expected to raise rate by another 100 basis points to 4.5% by the middle of the year.
HIGH YIELD STOCKS ARE YOUR SAFE BET, SAYS BERNSTEIN (1132 GMT)
High inflation and rising rates are still going to be key drivers for returns in the first half of 2023, Bernstein says, but the potential of a recession, especially in Europe, further complicates the picture since last year.
Against this backdrop, strategists at the U.S. investment house recommend that portfolio managers favour a defensive exposure focused on high combined yield, quality at a reasonable price and low leverage factors.
High combined yield - which blends high dividend with high net buyback and high free cashflow yield - in particular offers a "less cyclical and higher quality flavour of yield" which they say has historically outperformed when leading indicators flagged a recession and when rates were rising or flat.
In their "European High Combined Yield Stock" screen there are plenty of banks and energy stocks, which already tended to outperform last year, but other sectors are represented too.
Telcos Orange and Telenor, staples Danone and Imperial Brands, oil majors BP, Shell and TotalEnergies and banks BBVA , Intesa, Lloyds and SocGen are among the names in Bernstein's list.
Also in there are drugmaker Roche, industrials like BAE Systems, materials stocks Glencore and HeidelbergCement and utility Snam.
EARNINGS RECESSION TO DRIVE EUROPE TO NEW LOWS (1040 GMT)
Stock indices in Europe have started 2023 on a mostly positive footing. The EURO STOXX 50 is up 6.7% year-to-date, even with a 0.5% drop today.
Strategists at BNP Paribas expect the positivity to be short-lived and see further weakness ahead with the index making new lows this year.
"While the sell-off has so far been largely valuation-driven, this year we expect earnings downgrades to drive stocks lower," BNP Paribas strategists led by Ankit Gheedia say in a note published on Monday.
"In our view, not enough negative news is in the price."
The French bank sees the EURO STOXX 50 dropping to 3,200, a more than 20% drop from its current level and below last year's trough of 3,249.57, on the back of higher interest rates and earnings downgrades.
"The downside revisions to earnings already started in the last quarter, and we expect this trend to accelerate," BNP says.
"We expect margins to remain under pressure as the global economy moves from supply shock induced inflation to a demand shock driven disinflation period."
BNP is still positive on oil producers and expects banks earnings to outperform.
France is expected to outperform Germany, with German corporates most exposed to higher-for-longer gas prices.
The UK is BNP's most preferred in Europe, with the FTSE 100 expected to continue providing a good inflation hedge in the near term as high inflation and energy prices remain key drivers of equities over the winter months.
EUROPEAN SHARES SLIP AHEAD OF POWELL SPEECH (0855 GMT)
European shares slip as investors turned cautious ahead of a speech by Federal Reserve Chair Jerome Powell after two U.S. central bank policymakers struck hawkish tones on Monday.
Powell is set to give a speech that could give further clarity on the pace of rate hikes later in the day.
The STOXX 600 is down 0.6% with retailers slipping more than 1%.
In corporate news, shares in Euronav drop 20% after Oslo-listed rival Frontline said it had terminated a $4.2-billion deal to merge with the Belgian oil tanker operator.
PAGING MR. POWELL (0755 GMT)
The strong start to equity markets this year has got bulls excited but markets know it's better to be well behaved before Federal Reserve Chair Jerome Powell speaks.
Asian stocks edged lower on Tuesday after recent gains even as Asian tourism-focused businesses geared up for a return of Chinese tourists after the country's borders reopened on Monday.
European futures indicate a weaker open for stocks, which are basking at eight-month highs on growing hopes that the euro zone will only get a shallow recession, overcoming worries of a sharp slowdown.
Already, a drop in the region's headline inflation points to easing price pressures.
Later on Tuesday, Fed boss Powell is set to make a speech that could give further clarity on the pace of rate hikes while U.S. inflation data out on Thursday will further cement expectations.
While money markets are pricing in a 25% chance of a half-point U.S. rate hike in February, down from around 50% a month ago, inflation data and Fed speakers will dictate market action.
In Japan, consumer inflation exceeded the central bank's 2% target for a seventh straight month in a sign of broadening inflationary pressure.
Meanwhile, the French need to prepare to work longer than they do now.
French Prime Minister Elisabeth Borne is set to unveil a pension reform that is already angering unions and a large majority of voters and will be a key test of President Emmanuel Macron's ability to implement change.
And in news from the sporting world, Bloomberg News reported that English Premier League clubs Manchester United Plc, Tottenham Hotspur, or Liverpool FC are being targeted by Qatar Sports Investments over a potential acquisition.
Key developments that could influence markets on Tuesday:
Speakers: ECB Governing Council member and Bank of Portugal governor Mario Centeno speaks before lawmakers at 1630 GMT, Speech by ECB board member Isabel Schnabel at 1010 GMT
U.S. speakers: Federal Reserve Chair Jerome Powell participates in a panel discussion before the Sveriges Riksbank International Symposium on Central Bank Independence.
EUROPEAN SHARES SEEN LOWER ON HAWKISH FED REMARKS (0745 GMT)
European shares are seen opening lower tracking muted Wall Street close following hawkish comments from two Federal Reserve policymakers.
European futures are down around 0.5%.
If U.S. consumer price data confirms the cooling seen in the most recent monthly jobs report, Atlanta Fed Bank President Bostic said he would have to take a quarter point increase "more seriously and to move in that direction". San Francisco Fed President Mary Daly said both 25 and 50 basis point rate hikes are "on the table" for her.
Britain's labour market cooled further in December, according to a survey of recruiters published on Tuesday that may ease some of the Bank of England's concerns about the risks of longer-term inflation pressure. The BoE is worried that double-digit inflation will become engrained in the public psychology and it is likely to raise interest rates again next month.
