GAS CRUNCH: WHAT DAMAGE FOR EU INDUSTRIALS? (1226 GMT)
It's going to be a tough winter this year for both corporates and consumers dealing with an energy crunch.
But for Europe's energy-intensive industrial sector, how severe is the damage going to be?
Bernstein has looked into it and believes the hit to earnings could be close to a fifth, assuming that gas supply to industry is curtailed by between 22 and 30%.
"Industrial production may fall in the region of 6-9%... This is less severe than the reduction in industrial production during the GFC (-20%) and during the Pandemic (-13%)," say strategists at the U.S. investment house.
"This translates to an expected 12%-18% cut to 12m forward earnings estimates for the European market. Earnings revisions are only down 2.4% since the start of June," they add.
That being said, Bernstein recommends a rotation out of "quality" and into "inflation proxies" within the sector, "which have tended to oversell" due to uncertainty around the slowdown.
(Danilo Masoni)
SHIPPING FIRMS CRUISE TOWARDS ANOTHER RECORD YEAR (1221 GMT)
Global container shipping companies are sailing towards another record year of revenue growth in 2022 as supply logjams and inflationary pressures keep freight rates afloat, according to Allianz Research.
Shipping companies have seen a boost to revenue in recent quarters as a rebound in economic activity from pandemic-induced lows spurred demand and bottlenecks led to congestion at key ports in countries such as China and the United States.
"Freights rate were and continue to be the growth engine," says Allianz Research, adding that shipping costs are seeing no signs of abating and are expected to remain elevated in 2023.
After nearly doubling revenues in 2021, the global container shipping sector is on course to see a 19% jump in revenue in 2022, says Allianz, adding that higher prices of containers and fuel are expected to keep boosting freight rates.
Allianz says the industry's increased investments are unlikely to translate to a significant increase in shipping capacity as measures to reduce carbon emissions compel firms to retire older vehicles that do not comply with regulations.
Copenhagen-based company Maersk raised its 2022 profit guidance in August but warned that global container demand could weaken this year as sales of some products such as TVs slow in the face of high inflation and economic uncertainty.
(Amruta Khandekar)
BUMPY MARKETS? SMOOTH RIDE FOR HEDGE FUNDS (1109 GMT)
Global markets haven't had the easiest month in September, in what is shaping up to be a volatile time amid recession worries and central bank tightening of dramatic proportions to control sticky inflation.
This makes it fertile ground for hedge funds to navigate through tough times, according to UBS, which expects current market volatility to last into next year.
The Swiss bank says hedge funds continue to prove their worth in stabilizing portfolios, and the growing divergence between sectors and markets adds to the opportunity.
The Goldman Sachs Hedge Fund Long VIP index is down 26.5% YTD, compared to a little over 18% decline in the S&P 500 index
THE COST OF THE INFLATION REDUCTION ACT (1103 GMT)
J.P. Morgan estimates the Biden Administration's Inflation Reduction Act would cost S&P 500 earnings-per-share about $4 to $5 in 2023, largely factoring in the new corporate taxes.
The U.S. Senate last month passed a $430 billion sweeping bill intended to fight climate change, lower drug prices, impose 15% book minimum tax (BMT) on companies and levy 1% tax on share buybacks.
"S&P 500 companies will likely bear the bulk of the BMT increase given their high profitability, higher compositional weight towards overseas revenue and sector concentration towards Tech/Healthcare," said JPM analysts in a note.
"There may be some added incentive to favor dividends over buybacks given the new tax," they added.
The legislation also aims to reduce prescription drug costs by allowing Medicare, the government-run healthcare plan for the elderly and disabled, to negotiate prices on a limited number of drugs.
Healthcare and biopharma will likely avoid material negative earnings impact by items such as drug price reform until 2026 though it will remain one of the most sensitive sectors over the coming years, JPM analysts said.
EV stocks are material beneficiaries from the bill although government spending will likely be slow to ramp up in the next two years as corporates becomes compliant with new regulations, analysts said.
Rating agencies Moody's Investors service and Fitch Ratings told Reuters last month they expect the bill to cut inflation, but over the medium to long term, not this year.
(Medha Singh)
BACK TO VALUE? (1005 GMT)
The growing risk of a recession has been shaping the narrative across markets for months now and that has piled particular pressure on so-called value stocks, which are seen as more vulnerable to a downturn in the economy.
But for Goldman Sachs that has opened up an opportunity.
"A number of European sectors (banks, energy, basic resources and autos) trade on mid-single-digit P/E multiples. While the discount of value stocks narrowed for a brief period this year, the value-growth discount is back to extremes with recession risk and high policy uncertainty sending investors back to 'safe' growth defensives; and value sectors out-earning growth stocks," say analysts at the U.S. investment bank.
Then they add: "We see some benefits to value from here, with potential policy support for the energy crisis, higher rates and an attractive payoff asymmetry."
The MSCI Europe Value index trades at a PE ratio of 9.7 times, a record 59% discount to the MSCI Europe Growth, according to Datastream numbers charted below. Over the past 10 years, this discount has averaged 38%.
(Danilo Masoni)
REAL ESTATE WEIGHS ON STOXX (0820 GMT)
European shares are in the red, with the STOXX 600 down 0.3% after erasing earlier gains.
"There appeared to be some cautious optimism around yesterday, but it seems this morning fears over inflation are rearing their heads again," Stuart Cole, head macro economist at Equiti Capital, said.
Real estate stocks are at their lowest level since March 2020 and the worst performing sector today, down 3.4%
Banks are providing the biggest uplift, rising 1.2%, followed by autos up 0.8%.
FORE! (0648 GMT)
Sweden's Riksbank is expected to tee off another round of outsized rate hikes today, with its largest rate rise in three decades.
Later, the U.S. Federal Reserve begins a policy meeting likely to set the tone for markets in the months to come, after an inflation surprise prompted markets to rethink the outlook.
Little more than a week ago markets were aiming at a peak around 4% for the benchmark U.S. Fed funds rate. Now the two-year yield is pushing 4% and markets see a peak around 4.5%.
Futures imply a 1/5 chance the Fed on Wednesday delivers its biggest hike since 1984 and goes for a full percentage point.
The Swiss National Bank is also expected to deliver a super-sized 75 bp hike and the market sees an outside chance the Bank of England delivers its biggest hike since 1989.
That such large hikes are being contemplated relatively late in the cycle is testament to how badly inflation has wrong-footed markets and policymakers. Even the Bank of Japan is under pressure, as Japanese inflation tops its target.
Jitters about central banks' next moves kept Asia cautious about extending Wall Street's late bounce. MSCI's broadest index of Asia-Pacific stocks rose 0.9% and the dollar loitered around recent peaks.
British markets appear set for a steady return from a day off to mark Queen Elizabeth's funeral. Steady, that is, with sterling a whisker above a 37-year low, gilts eyeing their worst quarter in decades and the FTSE rangebound.
Key developments that could influence markets on Tuesday:
Swedish Riksbank rate decision
German Aug producer prices
Euro zone Aug current account
US Aug housing starts
U.S. Federal Reserve begins 2-day meeting
FUTURES SIGNAL POSITIVE START: (0633 GMT)
European futures are signalling modest rises of around 0.23% this morning, while the FTSE 100 looks set to outperform with futures up 0.6% as it reopens after being closed on Monday for the funeral of Queen Elizabeth.
Central bank activity is at the forefront of traders' minds, with a hike expected today from Sweden's Riksbank and a two-day Fed meeting beginning later. Rate decisions from the Swiss and British central banks will follow this week.
The Bank of Japan, on Thursday, is likely to buck the trend and maintain ultra-low interest rates and its dovish policy guidance.
In company news, Norway's Telenor warned on Tuesday that spiralling energy prices made it increasingly difficult to achieve its profit target.
Better news came from Germany's Henkel which raised its 2022 outlook for organic sales based on strong sales growth in its adhesives unit.
Bookbuilding continues for Volkswagen's 70-75 billion euros ($70-75 billion) IPO of Porsche .