* European shares fall 0.1%, off lows
* Fed likely to hike rates in March
* U.S. futures in the black
Jan 27 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
FORGET THE FED PUT (1025 GMT)
What about the Federal Reserve put, which some analysts
mentioned recently as a possible last resort for equities?
As Joost van Leenders, senior investment strategist at
Kempen Capital Management, explains, “the Fed put refers to the
Fed supporting markets in times of big sell-offs by halting rate
hikes or even cutting rates.”
“History has shown that rates hikes are unlikely if equity
markets have dropped by 10% from recent highs,” he says.
Here are the reasons why this time the Fed is unlikely to
make any move to support equities, according to Leenders.
Inflation is running at 7%, a severe limitation for the Fed
not to tighten monetary policy.
The Fed funds rate is lower bound anyway, so the Fed can’t
cut. It could slow its tapering process, but that is also highly
unlikely given its recent hawkishness.
Monetary conditions haven’t tightened that much recently, as
short term-rates hikes since early October resulted in a
flattening of the U.S. yield curve.
Finally, political pressure on the Fed is currently to bring
inflation down, not to rescue equity markets.
Check out this story for more background:
ANALYSIS-Stock selloff is far from forcing the Fed to blink
(Stefano Rebaudo)
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FED TIGHTENING CYCLE: BEND IT LIKE THE FOOTSIE (0959 GMT)
Many pundits expected London's FTSE 100 to do quite well
when the Fed decided to embarked in this new tightening cycle.
And it did!
Not only is the Footsie one of the only European benchmarks
to trade in the black this morning, it's also outperforming the
other blue chip benchmarks this year.
It's up 1.3% since the beginning of 2022, against a 4.5%
fall for the pan-European STOXX 600.
The fact that London's star index is overweight on the
value/cyclical side with big financials and commodities stocks
while quite light on tech, makes it a good bet to trade rising
yields, or so common wisdom goes.
As you can see this morning, so far, it's going according to
plan:
Betting on UK PLC has been a losing trade for some years
but it seems those advocating for a "Buy UK" strategy are
finally being vindicated. For now.
Check out this story for more background:
ANALYSIS-Cheap and unloved UK Plc still can't shake risk
discount
(Julien Ponthus)
*****
FED SENDS EUROPE'S TECH TO CHECK OUT THE BEARS (0920 GMT)
That was close!
The Fed's hawkish stance sent the European tech sector just
a whisker from bear market territory early this morning.
At the worst of its fall early this session the index was
down 19.9% from its November highs, just 0.1% from what
typically defines a bear market.
The index has now cooled down and is losing just about 2.1%.
But if Microsoft's results hadn't soothed investors
yesterday, it's more than likely that this chart would be
looking a tad different today.
As Brent Thill, an analyst at Jefferies said, Microsoft's
"guidance for the third quarter really turned the tape around
and saved the Nasdaq, if you will."
Check out our story on Microsoft's results:
Microsoft offers strong forecast, lifting shares
(Julien Ponthus)
*****
TECH TANKS, BANKS BUOYED POST-FED (0852 GMT)
A hawkish Fed is taking its toll on markets and in Europe
equities kicked off the session in risk-off mode.
Tech is falling all the way down to the lowest since May
2021, down 2.7% on bets policy tightening will compress the
industry's rich valuations, but rate-sensitive banks are taking
that positively, climbing more than 1% to a one-week high.
Earnings updates also came in play. Deutsche Bank made its
biggest annual profit in a decade, sending its shares rallying
4%, while software maker SAP slid 7% even as it confirmed its Q4
were boosted by growth at its cloud business.
(Danilo Masoni)
******
MORE THAN FOUR (0801 GMT)
The world's largest economy is predicted to https://www.reuters.com/world/us/us-economy-likely-regained-steam-q4-2021-growth-seen-best-37-years-2022-01-27record
GDP growth at a 37-year high of 5.5%, with data due later on
Thursday. Some such as JPMorgan reckon the figure could be as
high as 7.5%. We will also likely see weekly jobless benefits
claims dropping further.
That, in a nutshell, is why the U.S. Federal Reserve https://www.reuters.com/business/finance/inflation-fighting-fed-likely-flag-march-interest-rate-hike-2022-01-26
feels there is "quite a bit of room to raise interest rates".
Could there be more than four rate rises this year? Powell
did not deny that possibility, so markets have started to price
a fifth move.
Accordingly, Treasury two-year borrowing costs hit 23-month
highs, shrinking the gap with 10-year yields. And on t-bills,
the shortest-dated debt segment, Tradeweb notes a sharp
steepening, with the gap between the three- and six-month yields
at the steepest since 2015, and more than double from a
month-ago period.
Similar steepening is notable between other bill maturities
in a sign more tightening is being priced.
So the stock market selloff that had abated pre-Fed is back
in full swing, with world stocks down 0.6%; European and Wall
Street looking set for another tumble.
But if buyers are running scared, there are bargain hunters
of a different sort -- billionaire William Ackman https://www.msn.com/en-ca/money/other/ackmans-pershing-square-takes-new-position-in-netflix/ar-AATbfQq
said he had snapped up $1 billion worth of Netflix
shares since last Thursday's market tumble.
Companies, meanwhile, continue to deliver good news; Tesla https://www.reuters.com/business/autos-transportation/tesla-beats-revenue-estimates-record-deliveries-2022-01-26
for instance predicted 50%-plus growth this year, while
Deutsche Bank https://www.reuters.com/business/finance/deutsche-bank-nearly-triples-q4-profit-defying-expected-loss-2022-01-27
posted its biggest profit since 2011. But with buyers still in
hiding, Tesla shares tanked in after-hours trade.
Key developments that should provide more direction to
markets on Thursday:
-China's industrial firms saw December profits grow at
slowest pace in 1-1/2 years
-German consumer morale improves slightly
-New Zealand inflation at three-decade high
-South Africa expected to raise rates by 25 bps
-U.S. durable goods/advance Q4 GDP reading/initial jobless
claims
-U.S. 7-year note auction
-U.S earnings: Blackstone, Dow chemicals, Southwest
airlines, McDonalds T Rowe Price, Mastercard, JetBlue, Apple,
Visa, Mondelez
-European earnings: LVMH, Dr Martens, UniCredit Britvic, St.
James's Place, STMicro, SAP, Deutsche Bank, IG Group, Diageo,
Sabadell, SEB, Polymetal
(Sujata Rao)
*****
DOWN (SHARPLY) WE GO AGAIN (0730 GMT)
Relief from a no-surprise Federal Reserve statement lasted
only about 8 minutes yesterday but after that initial brief
spike Wall Street headed south in wild swings that took the Dow
Jones and the S&P indices in negative territory.
"Risk assets... reversed once Chair Powell began to speak.
Investors inferred that his greatest concern is being behind the
curve, and that policy will be tightened more rapidly than
previously believed." said Ian Williams, analyst at Peel Hunt.
And world markets are taking notice. In Asia shares tumbled
to their lowest in nearly 15 months and European equities look
set to follow with futures down 1.4-2.1%. U.S. contracts
meantime indicate the selloff is set to extend to a second day.
The Federal Reserve said it is likely to hike interest rates
in March and reaffirmed plans to end its bond purchases that
month in what U.S. central bank chief Jerome Powell pledged will
be a sustained battle to tame inflation.
(Danilo Masoni)
*****