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U.S. equity indexes fall, Nasdaq leads losses
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Euro STOXX 600 index down ~1%
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Crude, gold, bitcoin slip; dollar up
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U.S. 10-Year Treasury yield rises to ~3.94%
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GERMANY OVERTAKES UK AS THE MOST-SHORTED EUROPEAN MARKET(1021 EDT/1421 GMT)
Germany overtook the United Kingdom to become the most shorted European market as of Sept. 30, according to data and analytics firm SEI Novus.
The aggregated data set, which covers over 30 billion euros in short positions from more than 150 managers, showed Germany's short exposure was 25.47%, followed by UK with 20.2% and Sweden with 11.41%.
"Turbulence in European markets has driven increasing short activity, as investors seek returns in an increasingly tough market and as the economic outlook darkens," Michelle Silsbe, director at SEI Novus, said.
"In September, the UK's political and economic troubles were overshadowed by increasing short interest in Germany, which faces a tough winter as the war in Ukraine and rising energy costs impact the industry."
Industrial stocks (manufacturing) were the most shorted in September, ending the month accounting for 24.47% of total short activity in Europe, up from 22.98% in August, which Silsbe said was in anticipation of weakening demand.
Data last week showed
German industrial production
contracted in August as supply bottlenecks remained and inflation tightened its grip.
Overall registered short positions jumped to 483 on 30th Sept. (up from 452 on 31st August). Bridgewater Associates Inc had the greatest exposure, accounting for 19.32% of registered short positions last month.
Dutch chipmaker ASML Holding NV was the most shorted European stock by size with 3.7%, followed by 3.5% in beer maker C&C Group PLC, 2.2% in German software group SAP SE, 2.1% in Koninklijke Philips NV and 2% in British pest control services provider Rentokil Initial .
The German blue-chip index has lost 23.2% year-to-date, compared with a 20.5% decline in pan-European STOXX 600 index.
Europe's largest economy has lagged as it grapples with rising prospects of a winter recession due to an energy crisis and central banks' determination to tame inflation running at multi-decade highs.
U.S. STOCKS FALL ON EARNINGS, INFLATION ANGST (0955 EDT/1355 GMT)
U.S. stocks dipped on Tuesday as rising Treasury yields and concerns that the Federal Reserve will spark a recession as it aggressively hikes rates weighed on risk appetite.
Macro-economic concerns are expected to be reflected in corporate earnings as companies struggle with higher interest rates, surging inflation and a soaring dollar.
Investors are also cautious this week before consumer price inflation data due on Thursday, which could spark another selloff if it comes in above expectations and increases the likelihood that the Fed will plow ahead with large rate increases in a bid to bring down price pressures.
All major U.S. stock indexes were lower on the day, with the Nasdaq Composite leading losses with a decline, of more than 1% followed by the S&P 500, which dipped 0.8%.
Sector wise the picture also showed broad risk aversion, with consumer staples the only S&P 500 sector in the green. Info tech, financials and communications services were among the leading decliners.
Here is a snapshot of where markets stood in early trading:
SMALL CAPS: WHERE THERE'S SMOKE, THERE MAY ALSO BE VALUE -BofA (0900 EDT/1300 GMT)
2022's bear market has hit small caps hard. The Russell 2000 has fallen about 25% year-to-date, and is down about 31% from its early-November 2021 record close.
With this, however, a BofA Securities research team led by equity and quant strategist, Jill Carey Hall, is noting that the small-cap forward P/E recently fell to 11x, or its lowest level in more than 30 years.
According to BofA, amid September's sell-off, P/E multiples were compressed by 9% across all three size segments. The Russell 2000 forward P/E slid to 10.8x from 11.8x - or its lowest reading since 1990, and 30% below its long-term average since 1985.
Carey Hall adds that the relative forward P/E of the Russell 2000 vs Russell 1000 was little-changed at 0.71x from 0.70x, which is 30% below its historic average of 1.01x and remains at the lowest levels since the Tech Bubble.
For long-term investors, BofA says that today's valuations imply ~13% annualized Russell 2000 returns over the next decade vs ~10% for the Russell 1000.
BofA continues to believe small caps are largely discounting recession risks, and that small cap value still looks like a bargain relative to small-cap growth. Indeed, despite economic concerns, BofA says that sectors with the best estimate revision trends are cyclicals, while consumer discretionary now ranks last.
"Energy continues to rank best in our small cap sector ranking framework (based on relative valuations, revisions, technicals and BofA analyst upgrades-downgrades), where it also remains one of the most historically inexpensive sectors vs. history and vs. large cap peers."
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