Europe worst off as investor confidence plummets

EUROPE WORST OFF AS INVESTOR CONFIDENCE PLUMMETS (1017 GMT)

Investor confidence fell across the board in May amid soaring inflation and economic uncertainty, according to a survey by Hargreaves Lansdown, but it fell the most in Europe.

The monthly survey, sent to 6000 clients with a typical response rate of 10%, found sentiment plunging 21% on average.

European investor confidence was down by the most, 25% lower. Sentiment across the pond fared better but still tanked with North American investor confidence down 18%.

Investors are struggling to make sense of market volatility and an uncertain economic outlook, said Emma Wall, Head of Investment Analysis and Research at Hargreaves Lansdown in a note.

"The ongoing tragedy of the war in Ukraine, rising inflation, and the corresponding central bank policy reaction have added risk to equity markets, and turned clients off investing."

Describing the dilemma faced by central banks of tackling inflation while avoiding recession as a "tightrope walk", Wall advises investors to focus on the long-term and ignore daily movements if they can.

"Diversification is key, and drip feeding monthly through regular savings is the best way to smooth volatility," she concluded.

RETAIL: STOCK SHOPPING DISORDERS (0952 GMT)

European retail stocks have had a horrid run in 2022 with the sector losing a third of its value as fears about slower growth and even recession continue to grow.

The recent grim updates from Walmart and Target in the U.S. didn't do much to reassure investors who seem to be struggling to make up their mind about what to do with Marks & Spencer shares this morning.

Shares have swung between 127 and 135 pounds so far this morning after the iconic retailer released results which were in line or rather slightly higher than expected.

"Given how many of the US supermarket companies saw their share prices tank on their latest updates, investors in Marks & Spencer will be breathing a sigh of relief it hasn’t done the same", argued AJ Bell investment director Russ Mould.

While most analysts seem pretty pleased with the amount of profits extracted from the 2021-2022 fiscal year and the general direction of travel, they all stress how uncertain the outlook is given the economic backdrop.

"Customers are seeing their incomes stretched by rising inflation and that’s likely to weigh on sales growth moving forward", Laura Hoy, at Hargreaves Lansdown warned.

And while consumers will have less to spend, costs will continue to rise for M&S.

"M&S chairman Archie Norman warned that even with being partially hedged on energy costs, prices of food and clothing was likely to increase sharply in the coming months, due to higher freight, container, and wages costs", CMC Markets analyst Michael Hewson recalled.

See:

Britain's M&S pulls out of Russia and warns on outlook

(Julien Ponthus)

EUROPE IN THE GREEN (0750 GMT)

The pan-European index is gaining 0.55% at the open today, with basic resources leading the pack up 2%.

Mostly all sectors are flashing green, apart from tech names which are shedding a tiny 0.1%.

Some major UK supermarkets are losing ground after M&S reported a profit jump but warned on outlook amid a consumer squeeze.

While M&S shares jumped 1.1%, Ocado shares are among the biggest losers on the index so far, down 3.3%. Tesco shares are down 0.2% and Sainsbury's are 2% lower.

Swedish medical gear company Elekta is the highest performer, up 6.3% after Q4 profit beat estimates.

WHACK-A-MOLE ON MARKETS (0658 GMT)

While investors obsess over what the world's biggest central bank might do next, the uneasy calm prevailing in global markets is under threat.

First, Russia has edged closer to default after the United States said it would not extend a waiver that had allowed Moscow to pay U.S. bondholders.

Second, North Korea likely fired an intercontinental ballistic missile on Wednesday, hours after U.S. President Joe Biden ended his trip to Asia.

And in Britain, a report by senior civil servant Sue Gray into lockdown-breaking events in Downing Street may be published later in the day, heaping more pressure on Prime Minister Boris Johnson, who is facing a sharp slowdown in the UK economy.

For now, markets seem to be overlooking these developments. Asian stocks inched higher while European and U.S. equity futures are in the green, primarily due to a pullback in U.S. Treasury yields, where 10-year borrowing costs are near the lowest in nearly a month.

But that fall is down to a raft of lacklustre PMI and housing data that points to a cooling economy.

On currency markets, the New Zealand dollar was the standout gainer, following a 50 basis-point (expected) interest rate rise and a more hawkish tone than expected from the central bank.

The U.S. dollar remains just off one-month lows, as the weak dataprints forced traders to dial back some of their aggressive bets on monetary tightening. Money markets now see around 131 bps of rate hikes over the next three meetings, down from 145 bps at the start of the week.

And Atlanta Fed President Raphael Bostic sounded a warning that headlong rate hikes risked "significant economic dislocation".Markets will watch now for minutes from the Fed's last meeting, due later on Wednesday.

Key developments that should provide more direction to markets on Wednesday:

-Speakers' corner: ECB President Lagarde, Rehn, Panetta, Holzmann, de Cos and Lane, BoJ Governor Kuroda, Fed Vice Chair Brainard and BoE policymaker Tenreyro.

-Data: U.S. April data on durable goods orders and core capital goods orders.

-TotalEnergies agrees to buy 50% of U.S. renewables company Clearway

SEESAW STOCKS SIGNAL HIGHER OPEN: (0628 GMT)

European bourses are seen opening around 0.65% higher this morning, in keeping with a see-saw effect which has repeatedly seen stocks lose ground only to rebound the following day.

They are closely tracking higher Asian equities. The dollar also rose before publication of the Fed's May meeting notes, as traders look for more direction on future hikes.

Meanwhile the U.S. said it will not extend a key waiver set to expire on Wednesday that allows Russia to pay U.S. bondholders, which could push Moscow closer to the brink of default as Washington ramps up pressure on the country following its invasion of Ukraine.

In company news, TotalEnergies has agreed to buy 50% of the U.S's fifth largest renewables company Clearway Energy Group. Miner Glencore said on Tuesday it anticipates paying up to $1.5 billion to settle accusations of bribery and market manipulation, and Chanel has hinted at more purchase limits on products as luxury houses tighten their grip on distribution amid soaring demand.