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STOXX 600 down 1%
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Fed ups rates by 50 bps, sees more coming
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SNB ups by 50 bps; eyes on ECB and BoE
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U.S. stock index futures slide
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FOOD FOR THOUGHT FOR EMEA RETAILERS (1045 GMT)
A recovery for EMEA retailers is not on the cards in 2023 as consumers face a surge in living costs and cut discretionary spending.
The post-pandemic footfall recovery has fizzled out, and will continue its long-term decline, Fitch Ratings analysts say.
“We expect a challenging year as cash-strapped consumers look for value. How retailers adjust their offer and manage inflation will be the key to their performance in 2023," says Alise Ilzina-Raghuvanshi, a director at the rating agency.
Non-food retailers are suffering the most but the outlook is stable, following a number of downgrades since the onset of the pandemic nearly three years ago.
Intense competition among food retailers will continue, as they target discount-seeking consumers and face inflation and rising interest rates. Fitch has a negative outlook for half of all food retailers’ ratings.
The rating agency says it will be also closely monitoring the profitability of online channels and exposure to higher interest rates for highly leveraged issuers.
Two thirds of Fitch non-food retail portfolio are in the ‘B’ or below rating categories, while over half of its food retail ratings are in the ‘B’ or below rating categories.
LONG TESLA/SHORT EXXON: YOUR 2023 CONTRARIAN TRADE (1003 GMT)
Long ago, brokers and fund managers met over hearty Christmas lunches and often engaged in informal stock-picking races where contrarian calls were hard to resist.
Citi recalls this Wall Street tradition with an annual year-end look at potential contrarian bets. The main course going into 2023 appears to be long stocks and short commodities.
"Contrarians are currently long growth, bearish value and prefer cyclical to defensive sectors," say Robert Buckland and a team of strategists at the U.S. bank. "They will likely be bullish on US equities, especially tech stocks, and bearish bnergy. Within EM, they will likely buy anything China-related".
Drilling down to single picks - the strategy here being to buy the worst-performing 10 stocks of the previous year and to sell the best-performing 10 - it turns out that Meta is the top buy followed by PayPal and Tesla, while Occidental Petroleum is the top sell followed by Marathon Petroleum and Exxon Mobil.
Based on that, if you were to pair Exxon with Tesla, for example, you'd see that shares in the oil major have risen 243% relative to the electric vehicle maker over the past two years. A contrarian would not bet on a reversal.
"Our contrarian global stock-picker has finally become a Growth investor," Citi says.
"Having (wrongly) been bearish US Tech names for years, they are now long. Perhaps a Fed pivot will help their cause. Energy stocks dominate the bearish basket. Our contrarians might be hoping for a resolution to the conflict in Eastern Europe and likely associated fall in oil and gas prices. A sharp global slowdown might also help this trade," it adds.
“Reprinted with permission of Citi Research. Not to be reproduced.”
STOXX EYES WORST DAY SINCE SEPTEMBER (0848 GMT)
It's a risk-off start in Europe today as investors make their way through more interest rate hikes at major central banks that risk piling pressure on company earnings as economies slip towards recession.
The pan-regional STOXX 600 benchmark was down 1.2% and set for its biggest one-day drop since late September, while more than 70% of its constituents were trading in the red and virtually all sectors posted losses.
Here's your opening snapshot:
EUROPE HEADS SOUTH (0735 GMT)
Equity index futures point to a weaker start in Europe this morning, following a hawkish Federal Reserve and ahead of expected 50 basis-point rate hikes at both the European Central Bank and the Bank of England later today,
Disappointing factory output and retail sales data in China are also likely to weigh with futures on the Euro STOXX 50, DAX and FTSE last trading down 0.3-0.6% and following losses in Asia overnight. S&P 500 futures slid 0.6%.
There is some good-looking news on the European corporate front with H&M sales rising slightly ahead of market expectations, although traders- calls on shares of the world's No.2 fashion retailer were mixed.
Eyes are also on Enel after the utility entered talks to sell Romanian assets and approved a hybrid debt issue. Banking heavyweight HSBC is another one to watch as disgruntled shareholders launched a new campaign to spin off assets.
THANK YOU, NEXT (0658 GMT)
With the market on edge after hawkish rhetoric from the Fed, the stage is set for the Bank of England and the European Central Bank to deliver 50 basis point interest rate hikes and chart their path in the fight against irrepressible inflation even as their economies teeter towards recession.
The U.S. central bank on Wednesday raised interest rates by half a percentage point after delivering four consecutive 75 bps hikes, but signalled more increases in borrowing costs by the end of 2023.
"I wish there were a completely painless way to restore price stability," Fed Chair Jerome Powell said. "There isn't, and this is the best we can do."
Asian stocks slid, while the dollar swayed and U.S. Treasuries remained supported. With a looming recession on investors' minds there is a hint of scepticism on whether the Fed will follow through on rate hikes in the face of slowing growth. At about 4.9%, markets price a lower peak in the funds rate than the 5.1% median projection from Fed officials.
And so the focus switches to the BoE and ECB and what the central banks outline on Thursday. Norges Bank and the Swiss National Bank are also expected to hike rates, with economists forecasting a 25 bp hike in Norway and a 50 bp hike in Switzerland.
In China, a slew of economic data for November showed worsening conditions due to strict COVID 19-related curbs, and while Beijing has since ditched some anti-virus restrictions, the result has been a surge in cases, highlighting the dilemma facing the world's second biggest economy.
The country's central bank ramped up cash injections into the banking system and held interest rates unchanged on medium-term policy loans to keep liquidity conditions ample.
In the corporate world, Elon Musk, CEO of Tesla and Twitter owner, sold $3.58 billion worth of the EV maker's shares this week. Musk, who recently lost his title as the world's richest person, faces investor concerns that his purchase of the social media firm could divert his time away from Tesla, whose shares are down 55% in 2022.
Key developments that could influence markets on Thursday:
Economic events: BoE, ECB, SNB and Norges Bank policy meetings
