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LUXURY STOCKS TO THE RESCUE! (0840 GMT)
Things were looking quite ugly about an hour ago when
European futures were deep into the red following a rough
session on Wall Street where banking stocks, courtesy of Goldman
Sachs' earnings, and tech stocks got hammered.
But European equity markets have avoided a sell-off so far
thanks to luxury stocks which are to the old continent's
investors what FAANGS are, or were, for U.S. traders.
Shares in Switzerland's Richemont are leading the
STOXX 600 and up a whopping 7% after the world's second-largest
luxury group reported string demand for jewellery and watches.
That had a positive effect across the sector and France's
heavyweights, LVMH, Kering and Hermes are up and lifting the
Paris CAC 40 benchmark above the floatation mark.
The UK's Burberry is another strong performer, rising close
to 5% as the luxury brand said annual profit would beat market
expectations.
The retail sector was also on a roll, rising over
2% with Spain's Inditex leading the pack after Goldman Sachs
upgraded the stock due to resilient earnings and cashflow.
Marks & Spencer, Zalando and Kingfisher
were all rising over 2%.
The tech sector is also showing signs of resilience,
losing just 0.1%, a better fate than that of the Nasdaq last
night.
The start of the earnings season was also pretty positive
for Pearson shareholders who saw the stock jump 5%
after the education group raised its forecast.
(Julien Ponthus)
*****
GOLDMAN SACHS ADDS ANOTHER LAYER OF STRESS (0748 GMT)
For all the turmoil across financial markets yesterday, the
Nasdaq creeping dangerously near correction territory and
closing below a key 200-day moving average probably came as the
least surprising feature for investors.
After all, dumping expensive tech and growth stocks when
bond yields rise as the Federal Reserve embarks on an interest
hike cycle is seen as basic stock market trading 101.
Going overweight on banking stocks on tighter monetary
policy tightens is another common trade but that one backfired
spectacularly when Goldman Sachs missed quarterly profit
expectations and plunged 7% as rising expenses bit into its
fourth quarter earnings.
Traders are now waiting for Bofa and Morgan Stanley
to update the market today and see whether the key theme
of this new earnings season might just be rising costs,
including pay, denting profits across all industries.
With European and U.S. stock futures down over 0.5%, it's
fair to say there's palpable uncertainty on that front as other
structural forces of this tightening cycle are only gaining
strength in these early days of 2022.
The dollar is pumped up against rival currencies with
benchmark U.S. Treasury yields trading on two-year highs as the
Federal Reserve shows signs of being more aggressive in tackling
inflation while in Europe, Germany's 10-year bond yield rose
above 0% for the first time since May 2019.
Moreover, latest data showed British consumer price rose to
5.4% in December, its highest since March 1992, a level which
might encourage the Bank of England to speed up tightening.
Even the cautious Bank of Japan warned investors that
inflation may accelerate faster than expected if raw material
costs continue to spike.
This came as oil prices are up for a fourth day to levels
last seen in 2014 as an outage on a pipeline from Iraq to Turkey
increased concerns about an already tight supply outlook.
Key developments that should provide more direction to
markets on Wednesday:
-UK inflation rises to highest in nearly 30 years
-German harmonised inflation +5.7% y/y in December
US housing starts
US 20-year treasury auction
US earnings: Bofa, State Street Morgan Stanley, Proctor and
Gamble, Bancorp, Alcoa
Central Banks: BoE Governor Bailey and Deputy Governor Cunliffe
speak
Swiss National Bank Vice Chair Fritz Zurbrugg, speaks
(Julien Ponthus)
*****
