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March 28 - 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
MONEY FLEES CREDIT WITH RISKS GALORE -BOFA SURVEY (1430 EDT/1830 GMT)
A net 23% of investment grade investors - the largest on record - reported outflows over the past three months, while those expecting inflows in the next 90 days fell to the lowest on record for IG and close to a record low for high yield, according to a BofA Securities survey of investors.
With geopolitical and recession risks on the rise, U.S. credit investors remain bearish, BofA said in its March U.S. Credit Investor Survey of 116 money managers, insurers, hedge funds, banks and pension funds.
Inflation remained the No. 1 investor concern, while geopolitical risk rose to the No. 2 spot. A majority of investors, or 69%, expect a protracted conflict in Ukraine, with only 18% seeing a ceasefire in the next few weeks, BofA said.
Rising interest rates is the third-biggest concern, followed by oil prices and fears of recession and/or deflation.
Higher costs for hedging FX risk and flatter Treasury curves should make U.S. corporate yields at year-end 2022 as unattractive as in 2018, BofA said.
A net 27% of IG investors now expect credit quality to worsen over the next six months, while high yield investors are also negative on credit fundamentals, with a net 37% expecting lower credit quality over the next six months, BofA said.
The survey was conduction from March 21-March 23.
EMERGING MARKETS: OVERSOLD MIGHT MEAN OPPORTUNITY (1340 EDT/1740 GMT)
Russia's invasion of Ukraine has sparked knee-jerk selling across global financial markets, especially in China and across emerging markets (EM). With this, Saira Malik, chief investment officer at Nuveen, believes EM may have taken a less-than-fair hit, which has led to broadly oversold conditions.
Malik does caution that with the MSCI EM index trading down nearly 20% from its 52-week high, it might appear on the surface to be a screaming value play for investors with a tolerance for volatility.
However, she adds that compared to non-U.S. developed stocks and historical standards, those bargain prices might not make up for heightened geopolitical uncertainty.
Nevertheless, Nuveen remains constructive on EM equity markets, particularly China where uncertainty associated with geopolitics and COVID-19 containment measures might make for a bumpy ride in the near-term, but economic fundamentals remain intact.
Nuveen also favors attractively valued commodity exporters like Brazil and Mexico. And given its higher weighting in Latin America and yields north of 5%, Malik adds that EM debt might be a better way for investors with a more moderate risk tolerance to add EM exposure to their portfolios.
"Our EMD specialists continue to find opportunities in commodity exporters and idiosyncratic reform stories, including Saudi Arabia, Oman, Ecuador, Iraq and Zambia. They also favor local markets where central banks have already been tightening, such as South Africa, Brazil, and Chile."
(Terence Gabriel)
EUROPE ENDS HIGHER, AIRLINES UP AS OIL FALLS (1205 EDT/1605 GMT)
European shares closed higher on Monday though they were off their best levels as yields retreated from highs.
Earlier in trading, the U.S. 10-year Treasury yield jumped above 2.5% and banks were early gainers, but as yields retreated, so did financials.
The pan-European STOXX 600 ended the session higher by 0.3% after earlier climbing as much as 1.1%.
Shares in European airlines were strong as oil prices fell by over 6%. Wizz Air, EasyJet, Ryanair, Lufthansa and International Consolidated Airlines all rose by between 1.9% and 3.8%.
On the other hand, energy companies underperformed due to declining oil prices, which meant the FTSE 100 struggled compared to its European counterparts.
Meanwhile, Rolls-Royce shares were at the bottom of the index, with shares retracing some of Friday's 19% surge after unverified chatter of a "significant corporate transaction" with an unidentified suitor.
Analysts at Jefferies poured cold water on any potential deal, highlighting that the UK holds a "golden share" in the group so any takeover would have to be much more than purely opportunistic.
Here's the picture at the European close:
(Samuel Indyk)
EXPANSION STOCKS VS RECESSION STOCKS 1-0 (1130 ET/1530 GMT)
With Wall Street pondering whether recessionary signals in the U.S. Treasuries yield curve are really saying what they appear to be fortelling, Credit Suisse analyst Patrick Palfrey made checks on where investors are placing their bets.
So far Palfrey's data shows stocks that typically do well during an economic expansion have been outperforming so-called recession stocks, which tend to do better when growth declines.
The Credit Suisse expansion basket is made up mostly of companies from energy, materials, consumer discretionary and the financials sectors, while the recession basket includes a lot of consumer staples, utilities, healthcare and real estate investment trusts (REITs).
In aggregate, Palfrey shows a 3% gain for the expansion basket of stocks so far this year and a 4.6% decline for the recession basket stocks; EPS for the expansion stocks has risen 4.8% while for the recession stocks just 2.1%. From a P/E perspective, expansion stocks show a 1.4% decline compared with a 6.5% drop for the recession group.
Aside from 18 energy stocks in the expansion basket, discretionary stocks include cruise lines, hotels and two fashion companies with finanical stocks involving mostly banks.
The recession group includes bargain retailer Dollar General as well as Domino's Pizza on top of traditional staples companies that sell everything from toothpaste and bleach as well as food. REITS include cellphone tower companies as well as a public storage company presumably based on the idea that these are areas where people will still have to spend even in a downturn.
Here is the Credit Suisse graphic showing the performance difference:
(Sinéad Carew)
GETTING THE GOODS: TRADE BALANCE, INVENTORIES (1050 EDT/1450 GMT)
The Commerce Department Monday gave a sneak previews of February inventory and trade balance data, both of which suggested an ongoing global recovery from the abrupt shutdowns that have hobbled national economies.
The gap in the value of goods imported to the United States and those exported abroad narrowed last month to $106.59 billion, marking the first deficit decrease in five months, as export growth outpaced import growth by 1.2% versus 0.3%, suggesting a rebound in foreign demand.
Even so, the gap remains nearly 80% - or ~$47 billion - wider than the pre-COVID February 2020 reading.
"The recent trend is still clearly adverse," writes Ian Shepherdson, chief economist at Pantheon Macroeconomics. "Demand is stronger in the U.S. than elsewhere, so exports have increased at a much slower pace."
The imbalance has been a net negative for the economy for over a year, weighing on U.S. GDP for the last five quarters.
At the same time, the value of merchandise in the warehouses of U.S. wholesalers jumped by 2.1%, building on January's upwardly revised 1.1% gain.
This also bodes well for GDP in the first quarter, which wraps up this Thursday, and hints that companies are further replenishing their stocks as the global supply chain slowly limps back to normal.
All-in-all, however, many analysts believe the U.S. economic growth, weighed down by hot inflation and the lingering pandemic effects, has decelerated in the opening months of 2022.
"Q1 growth forecasts likely will be revised up a touch as a result, but the risk of a zero headline GDP print remains real," Shepherdson adds.
Wall Street was mixed in late morning trading as crude prices plunged on fears of waning Chinese demand.
Growth stocks were green, while value dipped into negative territory.
(Stephen Culp)
HEY DUMMY, IS THIS A BEAR MARKET RALLY? (1025 EDT/1425 GMT)
Even though Russia's invasion of Ukraine has added another layer of risks for economic growth while pushing inflation expectations even higher, most equity markets across the globe have managed to reclaim their "pre-invasion" levels.
The reasons of this recovery, which comes just as the Fed speeds up policy tightening, remain unclear - at best - and that begs the question of whether this is simply a bear market rally or whether the worst is already behind us.
UniGestion is cautious and advises clients not to add risk.
"The recovery in risk assets observed over the last two weeks looks like a bear market rally to us," said the Swiss-based asset manager in a note.
"At the moment, the combination of lower growth, higher inflation and faster tightening from central banks creates a dangerous environment to deploy risk in financial markets. The contradictory signals sent by fast rising stock indices and the fixed income complex... is yet another hint that investors might have become complacent with fundamentals, defying the central banks' credibility," it added.
Over the short term, the evolution of the situation in Ukraine is key given the impact it will have on the "inflation-monetary policy-growth" sequence.
"We could imagine a scenario under which a virtuous cycle blooms from the ashes of the war if the conflict ends sooner rather than later, but contrary to what recent price action suggests, it is nowhere to be seen for now," it said.
(Danilo Masoni)
RISK IS OFF BUT WALL STREET IS MIXED (1005 EDT/1405 GMT)
Oil prices are down, the dollar's strong and gold says risk is off, but Wall Street was trading mixed despite rising stock markets in Europe. What gives?
Consumer discretionary is leading the sectors gaining on the S&P 500, while energy is the biggest declining sector.
Growth is up, versus a decline in value, where the financial sector also is lower.
The Nasdaq is higher, while the S&P 500 is just above flat. The Dow is lower.
For the moment investors appear to be shrugging off a yield curve inversion that could point to a recession in the future.
The gap between 5- and 30-year Treasury notes inverted for the first time since early 2006 on Monday as a sell-off in the bond market resumed, with short-dated yields jumping to their highest since 2019, signaling a potential recession.
But two other measures of the yield curve have veered in opposite directions, raising questions as to what degree central bank bond buying and other technical factors may be distorting these widely watched signals on the economy's path.
Here is where markets stand in early trade:
(Herbert Lash)
NASDAQ COMPOSITE: BURGEONING STRENGTH (0900 EDT/1300 GMT)
The Nasdaq Composite ended Friday at six-week high. With this, the Nasdaq McClellan Summation (McSum), which is a measure of internal strength based on advancing and declining issues, ended at a 10-week high:
The McSum bottomed in late-January at -7,229, which was just below its late-2008 trough at -6,896. The late-January bottom also came as the measure flirted with a support line from late-2012. That line contained weakness in late 2018 and early 2020, essentially coinciding with major lows in the Composite.
The next test on the upside for the McSum is its Jan. 4 high at -4,151. A reversal below its February-17 high at -5,877, however, can suggest potential for downside pressure to intensify again.
Other measures of the Nasdaq's internal strength also continue to improve. Last week, the daily Advance/Decline line ended above its 30-day moving average for the first time since November 17 of last year - click here:. And the New High/New Low index has risen to 29.3%, or its highest level since mid-January - click here:.
(Terence Gabriel)
FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
