* European shares down 0.2%
* Autos stocks best performers up 1.1%
* Merger deal boosts utilities Suez and Veolia
* Diasorin rallies on U.S. acquisition
* Futures point to weaker Wall Street start
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EARLY SIGNS OF TROUBLE IN STOCKS (1245 GMT)
The gauges of investor anxiety, the VIX
indices of implied stock volatility in Europe and the U.S. hit
fresh pandemic-era lows on Friday.
But with markets continuing to hit record highs, UBS says
investors should not expect "the volatility lull to last",
adding that new virus variant and inflation fears could be real
Morgan Stanley also suggests that there is a "potential
early warning sign that the actual reopening of the economy will
be more difficult than dreaming about it."
Despite the record highs of the S&P 500 index, the Russell
200 small cap index has underperformed the S&P by 8% in the
month since March 12, MS notes.
"While this follows a period of historically strong
outperformance, when relative strength like this breaks down, we
take notice," says Michael J Wilson, equity strategist at MS.
Signs things have been changing include the fact that some
cyclical stocks have started to underperform, defensives are
doing a bit better, while indices of IPOs and SPACs have
underperformed by 20% as the excessive liquidity provided by the
Fed is "being overwhelmed by supply," MS says.
"My experience is that when new issues underperform this
much, it’s generally a leading indicator that equity markets
will struggle more broadly," Wilson says.
WHY ARE UK REOPENING STOCKS FALLING? (1230 GMT)
People are queuing up at shops in England and some even
managed to grab a beer at midnight as retailers, pubs, gyms and
hairdressers open after three months of lockdown.
But surprisingly retailers and leisure stocks are leading
the losses on the main shares indexes. Shares of big UK retail
names such as Primark-owner Associated British Foods fell as
much as 2%.
Other UK retailers including Games Workshop, WH Smith and JD
Sports have also retreated between 0.8% and 3.6%. In the pub
world, shares in JD Wetherspoon, Marston's and Mitchells &
Butlers are falling between 0.6% and 2%.
Jefferies said on Sunday that they remained positive on the
leisure space, especially pubs.
So why are those stocks falling amid the great re-opening
Well, in the case of AB Foods, the slip seems to be simply
the case of profit taking after its stocks jumped to a 13-month
high on Friday. JD Sports shares are also slipping off record
"While it is possible that we’ll see plenty of people
venturing into the shops today, particularly as it provides an
excuse to finally get out of the house, retailers need strong
footfall to be sustained for more than just a few days otherwise
they face more difficult times ahead," Russ Mould, investment
director at AJ Bell.
There is a share of investors that might not be convinced
the re-opening will be enough to quickly reverse retailers'
lockdown blues, suggests Mould.
For pubs, much of the skepticism is due to the fact that
only pubs with gardens or terraces are allowed to open today.
SCREENING FOR THE BEST STOCKS BY COUNTRIES (1215 GMT)
As investors are trying to make the most from the
cyclicals/value rally, UBS has come up with it's favourite plays
in Europe by countries:
UBS is "overweight" on:
* Germany as it is their favoured cyclical bet
* UK as it's coming off a 20-year low for relative
valuations with a dividend yield 35% above Europe
* Norway for its earnings momentum across all 12 markets and
valuations are reasonable with the cyclically adjusted P/E in
line with long-run averages.
They also upgrade Italy and Spain to "neutral", and turn
"underweight" on Sweden, Finland and Denmark.
Here a list of buy-rated stocks by UBS which trade “on
reasonable valuations” and have “positive earnings momentum:”
Volkswagen, HeidelbergCement, Siemens
, Royal Dutch Shell, Schroders and
LOOK AT THIS CHART: CORRECTION COMING? (1015 GMT)
Macro data and the super easy policy backdrop are helping
create a goldilocks setting for markets but BCA Research warns
investors should not become too complacent.
Its Equity Capitulation Index -- based on a mix of factors
ranging from trader sentiment to sell/buy ratio -- is at its
highest level since 1976, which would suggest there could be a
correction on its way.
"Readings this high are historically followed by a 10% or
more correction in the S&P 500. Equities are priced for
perfection and are thus vulnerable to any bad news," they say.
"Negative surprises over the near-term – stemming from a
growth disappointment, pandemic developments, domestic policy
surprises, China's growth deceleration, or geopolitical tensions
– could therefore trigger a tactical pullback," they add.
And BCA Research isn't alone. Last week Deutsche Bank
strategist Bankim Chadha predicted a -6 to -10% consolidation in
equities as growth peaks over the next three months.
WHY THE EARNINGS SEASON WON'T DISAPPOINT (0858 GMT)
With equity markets near record highs and much positive news
arguably already in the price, there is a worry creeping in that
strong Q1 results won't be enough to avoid disappointments.
So shall investors get ready for some kind of pull back as
the reporting season kicks in this week?
JPMorgan doesn't think so and while there is room for some
disappointment at the single stock level, overall it believes
company earnings will keep the stock market going.
"We see the profit outlook as staying supportive for the
equity market. This is both from the volume/operating leverage
perspective, as well as from the profit margin standpoint," say
strategists at the U.S. bank led by Mislav Matekjka.
"The activity acceleration, currently underway, bodes well
for profitability... (and) profit margins are improving, and
should continue to do so," they add.
As an encouraging sign, JPM points out that U.S. and euro
zone EPS projects have both been revised higher so far in 2021
by 6% and 3% respectively, whereas most of the time IBES would
be on a downgrading path.
OPENING SNAPSHOT: EUROPE SLIPS FROM RECORDS (0802 GMT)
European shares slipped from last week's record high this
morning as investors are waiting to see signs that the high
valuations are justified by companies' balance sheets, as the
earnings season kicks off in the U.S.
The pan-European index is down 0.3%, with basic
resources, banking and retailers leading
Also the London blue chips and mid caps are
trading between 0.4% and 0.6% lower, off from record highs as
England reopens shops, pubs, gyms and hairdressers today after
three months of lockdown.
In terms of single stock, the top mover this morning is
Italy's Diasorin, with its shares jumping as much as
10% after the diagnostics group said on Sunday it will acquire
U.S. based Luminex Corp in a $1.8 billion all-cash
In France, shares in Veolia and Suez
jumped around 7% as the utility companies said they have agreed
upon a merger deal.
"INFLECTION POINT" FOR MARKETS TOO (0702 GMT)
It will be an eventful week not least in the United States
where U.S. Congress debates a $2 trillion infrastructure bill,
inflation plus retail sales data will be released, banks report
Q1 earnings and $96 billion of three- and 10-year notes will be
auctioned on Monday. "An inflection point", Fed chairman Powell
dubbed it in a weekend interview.
Newsflow was hectic over the weekend too after China slapped
New-York-listed e-commerce giant Alibaba with a record $2.75
billion fine. Expect more of the same as Beijing bulks up
resources to crack down on anti-competitive behaviour.
Alibaba shares shrugged off the fine to rally in Hong Kong
but Chinese equities fell almost 1%, leading Asian shares lower.
European and U.S. futures are down, so are bond yields.
In contrast to signs of a strong global growth pick-up and
robust company earnings, the virus newsflow remains worrying.
India has surpassed Brazil in terms of infection numbers and
Germany removed powers from its "Länder" in order to more easily
impose activity curbs on regions with high numbers of
infections. Monthly damage to Germany's economy may run at 10
billion euros, Commerzbank estimates.
U.S. Treasury yields meanwhile stand more than 10 bps off
recent highs. They have eased in recent days, despite a blowout
March payrolls report and the largest annual producer prices
gain in 9-1/2 years.
If dovish Fed assurances have indeed sunk in, it could mean
a turning point for the dollar which has lost 1% in April
following a 3.6% gain in Q1.
Key developments that should provide more direction to markets
- UK retail opens up as lockdown eases.
-Bavarian premier Markus Soeder will run as a candidate for
German chancellor in September elections.
-Russian foreign minister Lavrov in Egypt.
-Euro zone retail sales data due.
-CEOs of almost 20 major companies including General Motors,
Ford Motor and Taiwan Semiconductor to attend White House summit
on semiconductor shortages.
-Companies: Microsoft is in talks to buy AI business Nuance
Communications for about $16 billion; UK shopping centre
operator Hammerson may sell retail parks portfolio to Canadian
private equity firm Brookfield: UK cyber security firm Darktrace
to float in London.
-Ibero-American banking conference with governors of Bank of
Spain and Bank of Portugal.
- Far-left candidate Pedro Castillo faces conservative Keiko
Fujimori in a June run-off of Peru's presidential election; In
Ecuador, banker Guillermo Lasso unexpectedly won a presidential
EUROPE SET TO OPEN LOWER AS U.S. EARNINGS SEASON KICKS OFF
After touching fresh record highs last week, European
bourses are seen opening lower mirroring Asia shares as earnings
season in the U.S. kicks off with investors looking for signals
that earnings can justify sky-high valuations.
Global investors are also expected to react after an
anti-monopoly probe in China found the e-commerce giant Alibaba
Group Holding abused its dominant market position for
China slapped a record 18 billion yuan ($2.75 billion) fine
on the e-commerce giant and reverberations could be felt beyond
the Asian country as over a third of the stock is held by U.S.
Over the weekend, Fed Chair Jerome Powell said the economy
is about to start growing much more quickly, though the
coronavirus remained a threat.