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IS THAT ALL PRICED IN BY NOW? (1115 GMT)
The grind higher in global equities is continuing unabated. European shares are at 14-month highs and MSCI's World Equity Index is up over 8% year-to-date, despite worries about the stability of the financial system and inflation remaining entrenched.
Index and analytics provider Qontigo, who measures investor sentiment using their proprietary ROOF scores, notes that sentiment has stopped falling and begun to climb in all markets they follow (Asia ex-Japan, Australia, China, DMs, DMs ex-U.S., EMs, Europe, Japan, U.S. and UK).
"Out of the six markets that ended the previous week with a bearish sentiment, only three — Asia ex-Japan, Europe and Japan — ended last week with investors still bearish, with Japan being on a strong recovery trend," says Olivier d'Assier, Qontigo head of applied research, APAC.
With markets resilient and sentiment improving, investors are wondering whether the rally in global equities has legs and what could bring it to an end.
"The question now is, do you still need to worry about high and still rising interest rates, a declining but still too high inflation, a determinedly hawkish Federal Reserve, a slowing economy, a second consecutive quarterly decline in corporate profits (with a predicted third in the making), historically high valuations (81st percentile going back 40 years, according to Goldman Sachs), a banking sector that is weak at the knees, a still (too) hot job market, an ongoing war in Ukraine with the possibility of fresh Spring offensives, rising China-US tensions, and the prospect of fresh political 'uncertainty' (euphemism for 'circus') next year in the world's largest economy?" d'Assier says.
"Or is that all priced in by now?"
(Samuel Indyk)
TSMC: OVERCROWDED? (1040 GMT)
Taiwan Semiconductor Manufacturing Company (TSMC) is the largest portfolio holding for 64% of global emerging market (GEM) funds, with an average weight double that of its nearest rivals, according to a note by Steven Holden, director and founder at Copley Fund Research.
"Positioning data from the EM funds in our analysis implies that fund managers are expressing unprecedented levels of confidence in TSMC’s ability to generate returns, compared to historical levels," said Holden.
TSMC, world's largest contract chipmaker, has gained 15.9% since the start of the year and is expect to report on its first-quarter earnings later this week.
Average fund weight for TSMC, while not the highest on record for the chipmaker eclipses the rest of the "Big Four", including Samsung Electronics, Alibaba Group Holdings and Tencent Holdings. Chart by Copley Fund Research
"With index weights at 6.5% and fellow active managers heavily positioned, its easy to see why most are sticking with their exposure," added Holden.
"The risk of not holding TSMC may be greater than playing the contrarian."
Not every one is optimistic.
The Taiwanese chipmaker fell 2.8% last week after a Nikkei report where Warren Buffett called geopolitical tensions "a consideration" in Berkshire Hathaway Inc's decision to sell most of its stake in TSMC.
Taiwan shares of TSMC closed 0.8% higher, while its U.S.-listed shares rose 1.4% in early premarket trading.
(Bansari Mayur Kamdar)
EUROPEAN BANKS BRACE FOR EARNINGS SEASON (1025 GMT)
After the turmoil of the past few weeks, the banking sector in Europe braces for the earnings season enjoying some restored confidence.
European banks are still down around 10% from an almost five-year high touched in late February, but the sector has surged more than 15% since tumbling to an almost four-month low on March 20.
Morgan Stanley reiterates its positive view on the sector saying that on a 7.4 times estimated 2023 earnings and around 20% cash yield over next 2 years the sector is mispriced.
"Less stress in the markets will allow room again for lower deposit betas at the strongest retail deposit franchises, providing upside to NII, which should more than offset potential higher funding costs," Morgan Staley analysts say.
Higher liquidity requirements could add an extra 1% headwind, they say, but the starting point is strong at 150%liquidity coverage ratio.
(Joice Alves)
ROTATION INTO DEFENSIVES HAS LEGS, SAYS JPM (0953 GMT)
JPMorgan believes defensive stocks will take the lead over value plays in the second half of 2023 and has spotted signs of investor switching from one to the other as bond yields look set to fall further.
"There is some rotation evident. Post a poor start in Jan-Feb, key defensive sectors, such as staples, utilities and healthcare, appear to be finding their footing," says JPM strategist Mislav Matejka in his latest strategy piece.
"On the other side, certain cyclicals, such as autos, construction, chemicals and capital goods, appear to be stalling, joining the banks peak. We think this will continue driven by further falls in bond yields, as well as a potential end to the rebound in European PMIs," he adds.
In this group, JPM analysts favour names such as AB Inbev, Novo Nordisk, Enel, Engie and BT Group.
Rotation into defensives has also happened within financials following the banking turmoil in March. That has seen investors buying into exchange operators like Deutsche Boerse and Euronext at the expenses of bank exposure.
(Danilo Masoni)
STOXX HITS 14-MONTH HIGH (0835 GMT)
European shares kicked off Monday on the front foot with M&A showing signs of life and subsiding equity volatility providing support, as focus turns to earning season with more big U.S. banks due to report later in the week.
The region-wide STOXX 600 benchmark index was last up 0.2% after hitting a fresh high since February 2022, while the euro STOXX volatility index was up but close to the November 2021 lows hit on Friday.
Slightly positive signs prevailed elsewhere, with the CAC 40 in Paris briefly hitting a fresh record high, while Frankfurt's DAX and Italy's FTSE MIB also reaching new multi-month peaks.
Among top STOXX gainers were payment firms Nexi and Worldline, both up over 4%, after FTSE 250-listed rival Network International received a $2.6 bln takeover proposal, boosting its shares by 18%.
Outside the STOXX, Rovio Entertainment rallied 18% following a takeover bid from Japanese game developer Sega.
Here's your opening snapshot:
(Danilo Masoni)
EUROPEAN FUTURES EDGE HIGHER (0639 GMT)
European stock futures rose slightly on Monday before the cash market open as investors awaited big earnings releases in the United States this week, with banks in focus following last month's market turmoil.
EuroSTOXX50 and FTSE futures were last up 0.1% and 0.3% respectively, after slight gains in Asia, while U.S. futures also pointed to a positive start for Wall Street. 59 S&P 500 companies report earnings this week including Bank of America, Morgan Stanley, and Goldman Sachs.
In the day ahead, the European videogames sector will be eyed after Japan's Sega agreed to launch a 706 million euro offer for Angry Birds maker Rovio.
Still in M&A, John Wood Group has decided to engage with Apollo Management for a firm offer from the private equity firm for its last buyout price of 240 pence per share.
Uponor was also on the watchlist after Belgian group Aliaxis made a $2-billion non-binding cash offer for Finnish plumbing and heating systems maker
And UBS was in focus after the Swiss bank won clearance by the U.S. Federal Reserve for its state-back merger with Credit Suisse. EuroSTOXX bank futures rose 0.2%.
MARKETS HOPE CHINA CHOOSES TO SURPRISE ON THE UPSIDE (0554 GMT)
It's been a careful start to the week in Asia with stocks and bonds little changed and the dollar holding most of Friday's bounce. The caution is understandable given the week holds updates on Chinese economic growth and global PMIs, along with the Fed's Beige book and at least eight Fed speakers.
Analysts are generally optimistic for the China data given the stunning strength of recent trade figures. House prices out over the weekend also surprised with the fastest growth in 21 months, a comforting sign since housing has been a major weak spot for the economy and a vulnerability for banks.
The central bank did its part by bolstering liquidity in the financial sector by rolling over maturing medium-term policy loans with higher cash offerings for the fifth month.
The fund injection should help replenish liquidity gaps created by upcoming tax payments by banks and companies, as policymakers seek to gin up activity.
Citi's economic surprises index for China data is at its highest level in 17 years, and the market sees upside risk for Tuesday's releases on GDP, retail sales and industrial output.
Meanwhile, the CME Fedwatch Tool caused a brief stir this morning when it showed the probability of a Fed hike on May 3 at a dead cert 98%. That may have been a fat finger as it's now back at a still safe bet of 83%, so it seems investors have concluded the bank crisis isn't enough to prevent one more hike.
Markets have shifted even further on the ECB to price in a 46% chance it will hike by a full 50 basis points on May 4. The first week of May is shaping up to be a doozy.
Analysts at Barclays note this week's corporate earnings would have more macro relevance than usual, given they will provide information on how resilient corporate balance sheets are to potential future financial pressures.
"Quarterly bank results, especially for U.S. regional banks, should also offer a first glimpse of the fallout from the March turmoil and the related tightening of lending conditions," they add.
Goldman Sachs and Morgan Stanley had both been expected to report a drop in profit, though that might not be inevitable given last Friday's upside surprises on earnings.
State Street , M&T Bank and Charles Schwab report later today and it will be interesting to see if the banking stress had more impact on them than on the larger institutions.
Key developments that could influence markets on Monday:
- Ongoing G7 foreign ministers summit in Japan
- ECB's Christine Lagarde speaks in New York
- Speeches by Bank of England Deputy Governor Jon Cunliffe and Federal Reserve Bank of Richmond President Thomas Barkin
- The, often volatile, Empire Manufacturing Survey and the NAHB housing survey are due
(Wayne Cole)
