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STOXX 600 up 0.1%
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Tech leads gainers
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Nvidia beats expectations
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U.S. stock futures rise
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U.S. HOUSING MARKET FLASHES RED RECESSION SIGNALS (1131 GMT)
Recession risks in the U.S. have been under investors’ spotlight for months, and still, there is no clear consensus about what will happen to the U.S. economy.
Jeffrey Schulze, Director and Investment Strategist at ClearBridge Investments, part of Franklin Templeton, argues that a steep drop in Housing Permits over the last three quarters led to a signal change from yellow to red, driving the overall signal of the ClearBridge Recession Risk Dashboard deeper into recessionary territory.
The ClearBridge Recession Risk Dashboard focuses on Housing Permits — authorizations to build a new home — as a leading economic indicator, Schulze explains in a research note.
Permits typically move ahead of actual “shovels in the ground” metrics, such as Housing Starts, by several months and often fall well ahead of recessions.
Permits are down nearly 30% from their peak one year ago and have dropped precipitously over the past three quarters, leading to a signal change from yellow to red.
STOXX GETS TECH SUPPORT (0955 GMT)
Chipmaker Nvidia's strong numbers are giving a boost to tech globally, including in Europe where the sector is the leading gainer and biggest uplift to the STOXX 600 in early deals.
Gains in semiconductor stocks ASML, Infineon and STMicro are helping the pan-European benchmark index edge up by 0.1%, steadying after recent weakness on worries over more rate hikes in the U.S., confirmed only yesterday by the latest Fed meeting minutes.
Well-received earning updates including from ad group WPP and Rolls-Royce are also giving a reason to cheer, along some fresh M&A activity in the UK with Wood Group rallying 30% after three unsolicited offers from U.S. private equity group Apollo Global Management.
Weakness in consumer staples and healthcare is a drag, weighing particularly on the Swiss index SMI, down 0.3%. The FTSE 100 in London is also negative as a number of big stocks went ex-dividend.
Here's your opening snapshot:
EUROPE SET TO REBOUND, EYES ON EARNINGS (0734 GMT)
Shares in Europe are expected to bounce back today following gains in Asia where better-than-expected numbers from chipmaker Nvidia drove local tech stocks up and helped soothe worries over more interest rate hikes by the U.S. Federal Reserve.
EuroSTOXX 50 and FTSE futures were last up 0.3% and 0.2%, respectively, while contracts on the tech-heavy Nasdaq advanced 0.7%. Nvidia's Frankfurt-listed stock was up 8.4%, tracking U.S. afterhour gains.
Traders will also have a flurry of fresh European earnings to digest. Deutsche Telekom reported better-than-expected-Q4 earnings thanks to customer growth in Germany and strong performance from T-Mobile US.
Italian oil major Eni more than doubled its net profit in 2022, while luxury eyewear maker EssilorLuxottica reported a rise in Q4 revenues, but its performance in China declined because of COVID-19 restrictions.
In the UK, defence company BAE Systems forecast more growth this year as military spend continues to rise, and Rolls-Royce beat expectations, helped by a better performance in Civil Aerospace and Power Systems. Ad group WPP forecast organic growth for 2023 above analyst expectations.
A NEW R* (0654 GMT)
After a rather flat Wall St finish, Asian stocks have done better so far on Thursday thanks in part to an earnings beat from chip designer Nvidia Corp. Its stock surged almost 9% after the bell and helped lift Nasdaq futures up 0.9%, with a spillover to South Korean and Taiwan tech.
That offered a brief break from brooding on interest rates, only for the Bank of Korea to spoil the mood with a hawkish-pause on hikes. While it held rates at 3.5% as expected, the commentary warned that restrictive policy would be needed for a "considerable time".
Five of the seven-member board also wanted to keep open the option for rates to reach 3.75%, perhaps with an eye on staunching further losses for the won.
This is all part of the higher for longer theme that saw central banks in New Zealand and Israel hike by 50 basis points this week and flag yet more to come.
Minutes of the Federal Reserve's latest meeting showed unanimity on the need to go higher, and that was before the barnstorming January payrolls report quashed all talk of imminent recession.
Fed fund futures now price in three more hikes to 5.25-5.50% and have drastically scaled back the outlook for future rate cuts, with barely one priced in by December.
For sure, markets always doubted the world would go back to the past decade of uber-low rates, but there was a general felling they might settle in a 1-3% range further out.
Now the range is looking more like 3-6%, a challenge for assets other than bonds and especially equities with high PE ratios - maybe including Nvidia's 88.3.
New York Fed President John Williams sounded suitably stern late Wednesday, noting that with global supply chains still disrupted, goods prices may not continue their recent decline and inflation in core services excluding housing continues to be far too high.
Indeed, it's looking like global supply chains will never be the same, what with the pandemic, the Russian-Ukraine war and Sino-U.S. tensions. Trade blocks are back in, while just-in-time manufacturing is out the window and nations are all about onshoring and securing domestic supply.
Add to that the impact of climate change, both directly on food prices and indirectly through the cost of transitioning to renewables.
Most developed nations also face a decline in working-age populations and sharply rising dependency ratios. Unless and until productivity makes a comeback, fewer hands to make things will tend to lead to rising prices.
All of which suggests higher inflation is here to stay and the neutral level of real interest rates has shifted upward. Welcome to the new R*.
Key developments that could influence markets on Thursday:
- The final read of EU January CPI is expected to see an upward revision to 8.6% y/y, from 8.5%
- U.S. second estimate of Q4 GDP is seen staying at 2.9%, while weekly jobless claims are forecast to edge up to 200,000
- Fed presidents Daly and Bostic are on speaking duties
