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Feb 23 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
EUROPE SEEN CLOSING THE U.S. EARNINGS GAP (1334 GMT)
Goldman Sachs strategists expect European and U.S. earnings to grow at the same annual pace of 6% by 2024, which would mark the end of long trend of underperformance since the 2008 financial crisis.
"This is very different from what occurred in the cycle following the GFC (Great Financial Crisis), when SXXP (STOXX 600) EPS grew 2% while S&P 500 EPS grew 87% between 2008 and 2019,” they wrote in a note published today.
That's no doubt music to the years of the crowd of investors betting that European stock markets will outperform Wall Street this year with higher interest rates denting the appeal of big tech.
Signs of a turnaround are already there, with Europe’s STOXX 600 down about 6% so far in 2022, while the S&P 500 confirmed a correction and lost 9.9% over the same period.
Solid earnings growth is seen as driving European equities in 2022 for which Goldman Sachs has upgraded earnings-per-share growth forecast to 8% from 6%.
Looking at the chart below which has a starting point in 2010, you can see how the S&P left Europe trailing behind, thanks notably to the rise of the FAANGs and Trump's massive tax cuts.
But as you can see in the next chart, it's a very different story from the start of 2022:
(Lucy Raitano)
EASYJET: A TIMELY FTSE 100 BOOSTER? (1144 GMT)
Glass half-empty: easyJet shares are still down about 50% from their pre-pandemic highs.
Glass half-full: the stock rebounded over 90% from the COVID-19 March 2020 crash and its recent positive performance has set it on course to make a comeback on the FTSE 100.
Index provider FTSE Russell last night put the low-cost airline on its indicative FTSE 100 addition list with the final decision depending on data at the close on March 1.
"The lifting of travel restrictions and another relaxation of testing requirements in February came as a much needed shot of medicine after the set-back of the Omicron variant", Hargreaves Lansdown analyst Susannah Streeter commented on Tuesday before the FTSE Russell announcement.
Joining the elite of British stocks again will certainly bring some tailwinds to easyJet but of course, there's also heavy headwinds blowing from Ukraine.
"The threat of war on the doorstep of Europe has unnerved the market, leading to a recent dip in travel companies’ share prices, and if the Ukraine situation deteriorates it could be yet another setback in the far from easy path EasyJet is attempting to follow to get back into the blue chip index", Streeter concluded.
In the meantime, the prospects of playing in the Premier League of UK stocks doesn't seem to be helping much today as easyJet is down about 0.5%.
(Julien Ponthus)
A DIFFERENT EQUITY MARKET (0907 GMT)
Latest hedge fund filings in the U.S. show the "Gods of Money" are positioning for a different equity market than the one they have traded in the last few years.
Funds continued to rotate away from growth stocks and are now more tilted to value than they have been since 2011, according to a Goldman Sachs analysis of 788 hedge funds with$2.6 trillion of gross positions.
At the sector level, hedge funds slashed positions in tech in favour of energy and financials. Nonetheless, the "FAAMG" stocks rank as the top five on its VIP list of popular hedge fund long positions.
U.S. hedge funds have had a torrid start to the year losing 3% on a year-to-date basis compared to a drop of more than 9% at the broader market level. Funds cut exposures to information technology, commercial services, and consumer discretionary while adding to energy, financials, industrials, and materials.
Exposure data calculated by Goldman Sachs show hedge fund net leverage is now at its lowest level since summer 2020 but higher than any time pre-pandemic, outside of late 2017 following tax reform.
At the stock level, however, the median S&P 500 firm carries short interest equivalent to just 1.5% of market cap, matching the record low reached in 2000 and roughly unchanged since the short squeeze in early 2021.
(Saikat Chatterjee)
STOXX UP, VOLATILITY DROPS, EARNINGS PLEASE (0852 GMT)
A raft of good looking earnings updates is doing its job this morning, pushing European stock markets higher at the open and driving a euro zone gauge of stocks' volatility further below the 16-month peak hit on Monday.
The STOXX 600 equity benchmark was last up around 0.8% with gains spread across all sectors and autos leading the way higher, up over 2%, following strong profitability numbers from Stellantis.
Other top gainers were also reacting to results, while hopes a war in Ukraine could be averted also came in play. Unite Group rose 8% as the student housing provider returned to profit. A strong Q4 boosted Aegas up 7% and JDE Peet's gained 6% on better than expected earnings. Danone and Barlcays also jumped on solid numbers.
(Danilo Masoni)
ANOTHER RATE HIKE FROM NEW ZEALAND (0751 GMT)
The Ukraine crisis may be tempering the most aggressive rate hike bets but New Zealand's latest interest rate rise suggests central banks remain firmly on the path towards tighter policy.
The Reserve Bank of New Zealand on Wednesday delivered its third straight rate increase, taking key policy rates to 1%. And it signalled a more aggressive tightening path to counter inflation, lifting the Kiwi dollar to a one-month high.
It also revealed plans to wind down its NZ$50 billion ($33.82 billion) bond holdings.
Officials at other central banks also made clear rate hikes were on their minds.
Bank of England deputy governor Dave Ramsden on Tuesday said he expects to see further tightening ahead while ECB policymaker Robert Holzmann is being quoted this morning saying the ECB could hike rates in the summer, before ending its bond buying.
Still, tensions between the West and Russia over Ukraine do complicate the outlook for policy, especially at the ECB. Germany's decision to put Nord Stream 2 certification on hold sent European natural gas futures sharply higher.
Further upward pressure inflation could be a by-product of the geopolitical tensions.
For now, markets are on steadier ground as investors await fresh developments. Asian stocks steadied overnight, European and U.S. stock futures are firmer.
On the earnings front, British bank Barclays said its annual profit nearly trebled as bad loan charges plunged and its investment bank continued its strong recent performance.
Key developments that should provide more direction to markets on Wednesday:
- Rio Tinto full-year profit soars on iron ore prices
- German GFK consumer sentiment
- WTO's General Council starts two-day meeting
- ECB: board member Frank Elderson; ECB VP Luis de Guindos speak
- Fed: Altanta Fed president Bostic speaks
- South African budget
- US 5-year note auction/2-year floating rate note sale
- US earnings: Lowe’s, Office Depot, Molson Coors, eBay
- European earnings: Stellantis, Merlin, Avast, Rio Tinto, Iberdrola, Barclays, Danone, Puma, Metrobank
(Dhara Ranasinghe)
EUROPE SET TO OPEN CAUTIOUSLY HIGHER (0738 GMT)
European shares look set to open slightly higher this morning after the West imposed what appeared to be relatively modest initial sanctions against Russia for ordering troops into separatist regions of eastern Ukraine.
Futures on the EuroSTOXX 50, DAX and FTSE indices were up around 0.4% following mild gains across Asian markets and as contracts on U.S. benchmarks also inched up after Wall Street closed off lows on Tuesday.
Risks that the Ukraine crisis could still escalate further into a full Russian invasion however are likely to keep investors wary of making any big directional bet and make for another day of choppy trading.
In corporate news, it's another heavy day for earnings releases in Europe with Barclays profits nearly trebling, Danone beating estimates, and Rio Tinto setting a record $17 billion dividend.
(Danilo Masoni)
