SUPPLY CHAIN DISRUPTION UNTIL YEAR-END? (1216 GMT)
The post-pandemic disruption to global supply chains is continuing and unlike in 2021, weaker demand is worsening the situation, according to a research note from Standard Chartered.
Supply chain constraints muddied the global economy's post-pandemic recovery last year, lowering GDP growth and increasing inflation, the note said.
And previous predictions by the Fed that pressures would ease at the beginning of 2022 have been thwarted by the Ukraine crisis and lockdowns in Shanghai.
All of the indicators tracked by Standard Chartered deteriorated in March, and there are hints that supply chain constraints could persist until the end of 2022.
"The six-month forward looking measures of US supplier delivery times have risen, indicating suppliers’ concerns about continued deterioration almost until year-end," the note said. Additionally, falling new orders-to-inventory in the U.S. and China indicate lower demand, suggesting that delivery delays are mainly caused by supply disruption.
(Lucy Raitano)
WAR TO CUT INTO EUROPEAN EARNINGS - BLACKROCK (1101 GMT)
BlackRock prefers U.S. and Japanese equities over European equities and expects the impact of the Ukraine war to cut into earnings despite analysts revising up estimates.
"We expect estimates for European companies to come down in particular as analysts start factoring in the war’s effect," the investor said in a weekly commentary report published Monday.
A weaker Euro, and the fact that European companies in the MSCI European index are export-oriented and derive just half of revenue domestically, will soften the impact, they said.
BlackRock reduced its overweight in European equities earlier this month.
Globally BlackRock is optimistic about equities, even as bond yields rise. Looking to inflation, BlackRock said it is more focused on the sum total of rate hikes rather than the timing and speed.
"We use the cumulative rate for determining future corporate cash flows, not the current rate or bond yields. And the higher the peak rate in this cycle, the bigger the impact because of the compounding effect over time. As a result, we believe equities can thrive when the end destination of policy rates is historically low," the report said.
In BlackRock's view, central banks will be forced to live with inflation so as not to destroy growth and employment.
(Lucy Raitano)
HIGHER FOOD PRICES: WINNERS AND LOSERS (1024 GMT)
As the war in Ukraine disrupts supply chains and energy prices surge, higher food prices in Europe look here to stay.
According to Credit Suisse equity strategists, this potentially long-term feature of the economy will benefit some and disadvantage others.
Possible winners include companies operating in nitrogen fertiliser, fertiliser alternatives, agricultural equipment, herbicides, GM crops and vertical farming.
Alternative forms of protein could also be a boon, particularly for companies specialising in frozen food. Palm oil and grain processors are also seen benefitting.
Meanwhile European food retailers are likely to underperform given that they cannot pass on higher prices without discount stores winning market share.
Food producers may also suffer from the margin squeeze, the CS strategists said.
(Lucy Raitano)
HOLIDAY BLUES BEGINS FOR FALLING STOXX (0820 GMT)
The pan-European STOXX 600 index is down 0.8% in early trading.
London-listed Spectris is topping the index, up 4.7% after it sold Omega Engineering and announced a £300m share buyback.
Among the biggest losers today are Adevinta down 7.6%, and CD Projekt, down 7.5%.
As signalled by earlier futures, the FTSE 100 is flat, dodging losses elsewhere in Europe where the German DAX index is down 0.5% and France's CAC 40 is down 0.6%.
Italy's FTSE MIB is losing 1.2% while Spain's IBEX is down 0.4%.
(Lucy Raitano)
KEEPING IT REAL (0727 GMT)
Bleary-eyed traders returning to work after the Easter weekend have a short, yet action-packed week ahead.
They must contend first of all with the inexorable rise in inflation-adjusted borrowing costs -- yields on 10-year U.S. inflation-linked bonds are within touching distance of turning positive for the first time in two years.
The milestone is important. What's helped equity investors stay calm even in the face of steadily rising Treasury yields is the fact that after stripping out the effects of inflation, bond yields were deep in negative territory.
But as some bond investors look forward to interest rate normality, it will be a worrying time for stock markets, especially in pockets such as Big Tech where high valuations are partially premised on rates remaining lower.
And Federal Reserve policymakers are upping the hawkish drumbeat, with St Louis Fed chief James Bullard (a known hawk) saying he did not rule out a 75 bps rate hike.
Markets have reacted by pushing the U.S. dollar above the 128 yen level for the first time in two decades. With futures now pricing more than 200 bps of Fed rate hikes by end-2022, the greenback index has surged to a new two-year highs.
Meanwhile the IMF's Spring meetings kick off later in the day. Why do we care? Two reasons. The Fund's forecasts will offer a sense of how much the war in Ukraine and COVID lockdowns across China are knocking the world economic outlook.
And the Ukraine newsflow is hardly comforting. Negotiations have turned sour, U.S.President Biden labeled Russia’s invasion a 'genocide' and Moscow has refocused its ground offensive in Ukraine's two eastern provinces.
Finally in Europe, France is in the spotlight before this weekend's second round Presidential election where latest polls suggest incumbent Emmanuel Macron has increased his lead slightly last week over the far-right's Marine Le Pen. Key developments that should provide more direction to markets on Tuesday: - Earnings: Accor, L’Oreal, Johnson& Johnson, Xerox, Halliburton, Lockheed Martin, Netflix, IBM - Central bank speaker corner: SNB's Thomas Jordan, Fed's Charles Evans - IMF releases World Economic Outlook
(Saikat Chatterjee)
EUROPEAN SHARES SET TO OPEN LOWER: (0646 GMT)
Only FTSE futures are escaping losses this morning in European markets.
Eurostoxx 50 futures, DAX futures are both down about 0.5%, while FTSE 100 futures are a fraction higher, up 0.04%.
War worries continue to weigh on markets, with Russian forces having launched their anticipated offensive in eastern Ukraine.
There were more hawkish signals from the Fed, as investors prepare for some major earnings announcements this week. Tuesday will see first quarter results from Johnson & Johnson, IBM and Netflix.
In European company news, Rolls-Royce said it was expecting UK approval for a mini nuclear reactor by mid-2024 . French music streaming platform Deezer will float in Paris through a SPAC merger valuing it at just over 1 billion euros ($1.08 billion).
Meanwhile on Friday China said it would cut the amount of cash that banks must hold as reserves for the first time this year, releasing liquidity to cushion a sharp slowdown in economic growth, and that it is closely watching inflation trends.
(Lucy Raitano)