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SPANISH FASHION RETAIL IN FOCUS 1158 GMT)
As soaring inflation pushes prices up and consumer sentiment plummets in Europe, RBC Capital Markets analysts expect to see increased polarisation between the performance of European clothing retailers, with Spanish names standing out as making a strong fashion recovery.
They expect Spain's Inditex, the owner of major fashion brands such as Zara, Pull&Bear, Bershka and Massimo Dutti, to see sales outperformance widen this year as in previous downturns, with Zara benefiting from consumers looking to replenish their wardrobes after two years stuck at home.
A return of international tourists to flagship stores in the U.S. is also helping matters, as well as Inditex's lower sourcing exposure to China compared to its European peers.
Inditex's sourcing from China is around 15% versus around 35% for H&M and around 50% for Primark, the RBC analysts said.
Given supply constraints and pressure at ports in China, Inditex should have a product availability advantage over its peers.
Shares in Inditex have jumped 12% in the last month, but remain about a fifth down year-to-date.
They are faring slightly better than the pan-European retail index of stocks, which is down 28% year-to-date and almost a third from a year ago.
This week will see B&M report full year results, while H&M, Halfords and ABF will report numbers in mid-June.
(Lucy Raitano)
PAST PEAK INFLATION: WHO STANDS TO GAIN? (1047 GMT)
It is becoming a common theme in markets that inflation is close to peaking, particularly in the U.S. and Europe, with recent data highlighting that point.
Last week's core PCE data, the Fed's preferred inflation yardstick, showed U.S. prices cooled to an annual rate of 4.9% in April, from 5.2% the previous month.
And as inflation shows signs of peaking and markets readjust their central bank tightening expectations, the MSCI's benchmark for global stocks had its best week in seven last week.
Many are now questioning how to position themselves if inflation has indeed peaked.
Goldman Sachs analysts, in a note published on Friday, highlight that on average, the equity market falls in the run up to inflation peaks and rallies in the months after the peak, but they also note there is plenty of variation around the average.
"In truth the peak in inflation might be helpful but equities really need other supports," GS writes, adding that historically it helps to have a favourable economic outlook, low valuations and falling rates.
So, should we expect an equity rally in the coming year?
"The uncertainty around the potential paths for inflation and the likelihood of it remaining sticky and high probably mitigate against equities rallying sharply," Goldman says, with inflation likely to remain above target well into 2023.
The U.S. bank continues to recommend four areas in Europe - strong balance sheets, high & stable margins and companies with exposure to structural rise in Capex and/or government spending.
Meanwhile, they believe consumer discretionary names remain vulnerable as demand is likely to be hit by the persistent and sticky inflation and its impact on real wage growth.
(Samuel Indyk)
OIL AND GAS STOCKS AT 2019 HIGHS (0927 GMT)
Will it, won't it?
It's really not clear at this point whether the European Union will find an agreement across its members states to ban Russian oil imports.
The new round of sanctions against Russia may indeed fall short of a boycott which might send oil prices down again.
In the meantime, oil prices just hit their highest in more than two months.
For their part, European oil and gas stocks are making modest gains but the gentle rise was enough to push the sector's index to levels unseen since October 2018.
And when one looks at the chart over the last 20 years, it shows that European oil and gas stocks have rarely tiptoed into these highs since the 2008 financial crisis.
See:
EU makes eleventh-hour push for deal on Russia oil sanctions
Oil prices climb to over 2-month highs ahead of EU meeting on Russia sanctions
IMPRESSIVE CATCH-UP IN COPENHAGEN (0758 GMT)
The Danish bourse was closed for two bank holidays on Thursday and Friday but it is sure making up for it this morning!
The OMX Copenhagen 20 index is up a whopping 4.3% after only an hour of trading.
Needless to say, it is clearly leading other major trading centres in Europe which enjoyed the rebound which took place at the end of last week.
Frankfurt, Paris and Milan are up about 0.7% while London is up by a modest 0.3%.
Here's how the constituents of the Danish index are faring this morning:
EUROPE: SELL AND BUY BACK IN MAY (0739 GMT)
European equities are up again and on course for a fourth straight day of gains.
Little by little, the STOXX 600 is claiming back the losses sustained in May and at this rate, it might just finish the month in the black.
The pan-European index is up 0.7% about 20 minutes after the open and now only 0.8% down for the month.
There's clearly some risk-on signs like bitcoin up 4% and trading well over $30k while Nasdaq futures are gaining 1.3%.
Cash trading is also doing well for the European tech sector which is adding 1.5% and leading the broader market.
(Julien Ponthus)
ONE INVESTOR'S REBOUND IS ANOTHER'S BEAR RALLY (0659 GMT)
What a difference a week makes!
With the Dow Jones snapping out of its longest weekly losing streak in nearly a century and scoring its best week since 2020 last Friday, the narrative across stock markets has swiftly moved from meltdown fears to hopes of a rebound.
But there are contrasting expectations at play: some strategists believe the S&P 500's 9% bounce back from its May 20 lows could in fact hide a bear rally, or in other words, a money trap before a deeper spiral lower.
Still, capital is making its way back to the stock market with $20 billion flowing to equity funds last week, the largest inflow in 10 weeks, according to BofA citing latest EPFR data.
Investors puzzled with the direction of travel for equities are equally flummoxed with the U.S. dollar index falling 3% from a two-decade high in mid-May.
Behind that whiff of optimism for stocks and the dollar's rivals are signs that cooling U.S. inflation may prompt the Federal Reserve to slow down the pace of interest rate hikes after the summer.
Money markets have rushed to cut bets about the total interest rate hikes expected in the U.S. this year from over 190 basis points only recently to just over 180 basis points this morning.
In Britain too, despite expectations of 10% inflation, recession signals are forcing a shift, with 120 basis point of rate rises priced until June 2023 against 165 at the start of May.
Of course, big inflation drivers remain and the war in Ukraine could lift energy and grain prices even further as have COVID-19 outbreaks in China the potential to bring more disruption to global supply chains.
This morning's data coming from Europe suggests we may not have passed peak inflation just yet: German import prices surged 31.7% in April, the strongest increase since September 1974.
Key developments that should provide more direction to markets on Monday: - Swedish economy shrinks as pandemic and war pinch exports - German April import prices surge 31.7% - Euro zone business climate/sentiment/inflation expectations - German prelim CPI/HICP - Kenya's central bank decision --Pool: Japan Q2, full-year growth to be weaker than previously estimated
(Julien Ponthus)
FRIDAY'S UPBEAT MOOD MAKES IT THROUGH THE WEEKEND (0555 GMT)
The upbeat mood which lifted Wall Street at the end of last week made it through the weekend and helped Asian stocks secure substantial gains earlier this morning.
MSCI's broadest index of Asia-Pacific shares outside Japan is up about 2% at a three-week high while Japan's Nikkei is adding 2.3% itself.
European equity futures are also making gains.
Eurostoxx 50 futures, DAX futures and FTSE 100 futures are up 0.7%, 0.6% and 0.3% respectively.
(Julien Ponthus)
