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V-SHAPED RECOVER IN EUROPEAN EQUITIES "IMPLAUSIBLE" FOR NOW - UBS (1134 GMT)
European equities need to pause for more data to validate the V-shaped recovery currently being priced by the market, according to UBS strategists, who consider such a recovery implausible for now.
The STOXX 600 is up 9.2% this year to 460 points, not far off a one-year high on Feb. 16.
If the recent rally turns out not to be justified, the downside could be 12% to UBS's 410 target for the STOXX 600.
One recent signal that the market is "running on fumes" is a U.S. senior loan officer survey that showed tightening lending standards and lower loan demand, the strategists wrote.
"We think it is likely that European real-economy financial conditions are tightening just as fast now. In both regions, M2 money supply is now shrinking."
They describe equities as being in the middle of a "regime change", from downturn to recovery, but that the current levels are towards the top end of such a range, which they pit as 410-460 for the STOXX 600.
Earnings weakness is what could drive equities lower going forward, and the U.S will lead the downturn, the UBS strategists add.
ONLY HALF THE STOXX YIELDS MORE THAN BONDS (1125 GMT)
The relentless surge in bond yields has made pursuing equity income strategies somewhat more complicated.
And this stat by BofA Global Research is quite telling: only half of the STOXX 600 index yields more than local 10-year bonds, which is the lowest proportion since 2011.
This means investors need to be more careful than before when it comes to their dividend picks. With that in mind, BofA has set up screens with high expected dividends.
The first basket of 15 large cyclical stocks has a heavy representation (almost 50%) of banks such as Intesa Sanpaolo , BBVA, ING and NatWest.
The second one, of defensive plays, features insurers like Swiss Re, along with utilities like Iberdrola , staples like Unilever and drugmakers like Novartis.
FAVOUR EUROPE OVER WALL STREET, BARCLAYS SAYS (1029 GMT)
Now that the earnings season in Europe is well past its peak and it's almost established that the numbers weren't as bad as many had feared, how should investors position, given that much of the good news has arguably been priced in?
Barclays has looked into it to conclude that portfolio managers should focus on relative value, which it believes favours European equities over Wall Street, along with select value/cyclicals and banking stocks.
"As upside to global equities feels constrained now, we believe that EU equities score better than US ones on both earnings and valuations metrics, while positioning is also on their side." say Barclays strategists led by Emmanuel Cau.
"The region has been underweight in global portfolios for a long time. However, with the recent narrowing in growth prospects... and worries about European integration receding somewhat, demand for European stocks is starting to pick up".
So, that's why Barclays is keeping an overweight Europe versus the U.S.. However, even though the region should enjoy a strong relative performance, the absolute upside looks limited. Its STOXX 600 target in fact remains at 475 points, which is just 2.4% above Monday's close.
A SEA OF RED AS MINERS DRAG (0917 GMT)
European stocks are a sea of red this morning, with a few less-than-stellar results weighing on the pan-regional index. A drop in mining shares is not helping either.
Basic resources stocks are languishing near the bottom of the list, with the sector down 2.3%, weighed on by mining giants Glencore and Rio Tinto which are down 2.7% and 2.6% respectively.
Real estate is also faring poorly, down 1.5%, while banks are down 1.3%.
Fresenius shares are down 5% while Fresenius Medical Care shares are 10.3% higher, as the market digests the German healthcare group's latest results and reshuffle.
BE Semiconductor shares meanwhile are rising 7.5% after results.
Media names are only sector just about bucking today's downward trend, trading 0.1% higher.
NOT IF OR WHEN BUT HOW FAST? (0752 GMT)
Is it really good news? Probably yes, probably not.
Economies from the United States to Germany to Britain are showing an unexpected pick-up in business activity, but markets are again giving a thumbs-down to these indicators.
Just as inflation once again becomes the biggest pain point for investors after they conveniently put away such worries last month, strong growth cements the case for higher interest rates.
Fed funds futures traders are now pricing for the Fed's benchmark overnight interest rate to reach 5.36% in July and end the year at 5.18%.
And financial markets now point to a 95% chance of an increase in the Bank of England's official rate next month, up from 90% early on Tuesday.
That is depressing the mood for equity traders.
Asian stock markets floated in a sea of red on Wednesday following an ugly sell-off on Wall Street.
Ten-year U.S. Treasury yields rose to 3.966%, the highest since November. The dollar and sterling strengthened on expectations of further rate hikes.
Inflation data from Germany and Italy due later on Wednesday will offer clues on price pressures.
In this risk-off environment, the stage is set for the release of the minutes of the Fed's meeting from last week.
Markets will scrutinise it for signs on how high officials project interest rates will go following recent data that showed stronger-than-expected U.S. employment and consumer prices.
Political tensions are also heating up as President Joe Biden and Russian President Vladimir Putin spar verbally, presenting starkly different views of the world and the Ukraine war.
China said on Wednesday that its top diplomat, Wang Yi, met Russia's security chief and both sides agreed that peace and stability in the Asia-Pacific region should be resolutely upheld, and opposed the introduction of a Cold War "mentality".
On the corporate front, Bloomberg News reported that sovereign wealth fund Abu Dhabi Investment Authority is among the parties considering a bid for a 34% stake in Associated British Ports that could be valued at about 2 billion pounds or more.
And finally, consulting giant McKinsey & Co, which is known for advising businesses on a variety of projects including layoffs, plans to cut about 2,000 jobs, in one of its biggest round of layoffs, Bloomberg News reported.
Key developments that could influence markets on Wednesday:
European economic data: German and Italian Jan inflation, Germany Feb Ifo survey
European results: Iberdrola, Lloyds, Telefonica
U.S. results: eBay, Nvidia
U.S. Fed releases minutes from Jan meeting
EUROPEAN FUTURES HEAD LOWER (0734 GMT)
European futures are heading lower this morning, with those on the STOXX 50, DAX and FTSE all down 0.3%-0.4%. U.S. futures are up by a marginal 0.1%.
The day has already kicked off with the release of Germany's latest inflation, which showed a rise of 9.2% on the year in January and a month-on-month increase of 0.5%. Italy will follow suit with CPIs at 0900 GMT.
At the open, eyes will be on Lloyds, after the UK lender reported flat annual profit for 2022 on Wednesday.
In more positive news, carmaker Stellantis said on Wednesday operating profit grew 17% in the second half of last year, and Europe's biggest utility Iberdrola expects net profit to grow this year.
Post-European close, traders will be pouring over newly released minutes from the Federal Reserve's last meeting for hints over how the central bank's tricky task is going.
