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STOXX Europe 600 up 0.6%
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Optimism over U.S. debt ceiling talks
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BT, Burberry down after results
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Wall Street futures advance
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EUROPEAN STOCKS APPROACH HIGHS, BUT MARKET QUESTIONS DISCONNECT (1051 GMT)
European shares are getting a boost today on optimism that the U.S. debt ceiling debacle could be resolved soon.
The STOXX 600 is up 0.6%, and only about 0.75% off a 15-month high. Germany's DAX has a similar climb to surmount before it reaches an all-time high, and is last up 1.6%.
But beyond the prospect of short term peaks, market players are discussing the apparent contradiction between the rising equity market and the uncertain macro outlook.
JP Morgan strategists suggest that investors remain underweight global stocks from here, with the new year boost from falling gas prices in Europe and the China reopening unlikely to transition into an acceleration in the second half.
"The main disconnect that the market will need to grapple with revolves around the hopes of a soft landing, without much pain to profits, labour or credit, but at the same time the expectation that inflation will come down quickly," they wrote in a global equity strategy note on Monday.
The mismatch between a positive micro outlook and gloomy macro outlook was also picked up on by a recent HSBC analysis of call transcripts, that found recession fears to be fading, while sentiment towards earnings, revenues and guidance is improving.
For some, the market's disconnect is quite straightforward.
"Equity markets are rising on a belief that were getting rate cuts," said Michael Hewson, Chief Market Analyst at CMC Markets.
"When does the market come to the conclusion that we are not going to get rate cuts…against the backdrop of inflation that could be much more of a headwind over the next 6-12 months, and that rates might have to stay high next year?," said Hewson.
(Lucy Raitano)
UK ENERGY NATIONALISATION, JUST NOISE? (0955 GMT)
It had no visible impact on UK stocks but a Financial Times article about the Labour Party's top financial backer, Unite, urging party leadership to reconsider the case for nationalising the energy sector is doing the rounds.
U.S. bank Citi has looked into it to conclude that this is just noise. It sees a number of reasons why such a move looks unlikely for now.
1) We are still some way away from a general election, expected in autumn 2024
2) Labour leader Sir Keir Starmer has been trying to distance himself from his predecessor Jeremy Corbyn's position on issues such as nationalisation
3) Judging by the local election results, Labour, although leading in the polls, seem unlikely to muster an overall majority on their own...
4) There have been discussions of potential legal challenges in the past relating to a nationalisation at book value. As such, we are not concerned by these reports at this stage
As a result, Citi sticks to Centrica as its top pick.
(Danilo Masoni)
DAX POWERS UP, VOLATILITY DROPS (0840 GMT)
Shares in Europe got off to a strong start, pushing the German DAX up over 1.5% to its highest level since January 2022, helped by strength across autos and industrials .
Optimism over U.S. debt ceiling talks gave a big boost to morale across the region, following a strong Wall Street close on Wednesday. Other country benchmarks also showed healthy gains and the region-wide STOXX Europe 600 added 0.6%.
The FTSE 100 advanced 0.6% even with big drops in BT Group and Burberry shares following disappointing results weighed on London's top share index.
A gauge of euro zone equity volatility slipped to its lowest since November 2021, and was last just above 16.
STRONG WALL STREET CLOSE SET TO LIFT EUROPE (0645 GMT)
Optimism over a possible breakthrough in U.S. debt ceiling talks is keeping up in early European hours on Thursday following a strong close for Wall Street the day before and overnight gains across Asian markets.
Futures on the region-wide EuroSTOXX50 and London's FTSE 100 were both up around 0.5%, while U.S. equity futures pointed to a more subdued open following the rally the day before. MSCI's broadest index of Asia-Pacific shares pushed 0.8% higher.
Switzerland and Scandinavian markets are closed for holiday, and that could reduce activity.
In corporate news, Deutsche Bank agreed to pay $75 million to settle a lawsuit by women who say they were abused by the late financier Jeffrey Epstein, and accused the German bank of facilitating his sex trafficking.
Burberry reported a 16% rise in Q4 comparable store sales, boosted by a rebound in its largest market China following three years of COVID-19 restrictions.
Royal Mail posted an annual adjusted operating loss of 419 million pounds, beating market expectations, while BT Group announced up to 55,000 jobs cuts after it met market expectations with a 5% rise in full-year adjusted core earnings.
(Danilo Masoni)
GET READY FOR THE DEBT CEILING RALLY (0557 GMT)
European shares look poised to rally after a wave of optimism that a U.S. debt ceiling deal could be reached as soon as the weekend, which lifted stocks on Wall Street and in Asia.
Investors keyed in on an agreement between President Joe Biden and top congressional Republican Kevin McCarthy to negotiate a deal directly, with Biden cutting short an Asia trip to return to talks on Sunday.
Analysts highlighted how both parties agreed to new, smaller teams to continue negotiations, which they took as a sign that discussions have moved to a more advanced stage.
So still work to do, and still room for twists in this tale before the Treasury runs out of cash as soon as June 1, which would trigger a disastrous, first-ever default.
The air may be getting thin in some stock markets, particularly Japan's. The Nikkei came within 130 points of its highest since 1990 - back in the days of the "bubble economy" - after smashing through 30,000 a day earlier for the first time in 20 months.
The Nasdaq is on the cusp of a 13-month peak, and the Dax is hovering near its highest since January of last year.
May is traditionally a month for selling, but the U.S. default timeline is delaying the start of traders' summer vacations, so several analysts still predict a correction is coming, but maybe not until June.
The European data cupboard is largely bare today, meaning the next macro focal point will be a smattering of U.S. indicators, including the Philly Fed survey, jobless claims and existing home sales.
Some resilient data lately has suggested the Fed doesn't need to rush to cut rates, and the market has even priced a 1-in-5 chance of a quarter-point hike in June, from next to zero last week.
In Asia, there was new evidence that China's post-COVID recovery is already past its peak, this time from Japan, where exports grew at the weakest pace in more than two years in April as shipments to its neighbour slumped for a fifth straight month.
Key developments that could influence markets on Thursday:
Central bank speakers: Bank of England chief economist Huw Pill, Fed governor Philip Jefferson, Fed Vice Chair for Supervision Michael Barr and Dallas Fed chief Lorie Logan
Earnings: Easyjet, BT Group and Burberry in the UK; Walmart, Applied Materials and Alibaba in the U.S.
