UK bank provisions "likely contained" in face of mortgage delinquencies - JPM

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UK BANK PROVISIONS "LIKELY CONTAINED" IN FACE OF MORTGAGE DELINQUENCIES - JPM (1009 GMT)

JPMorgan equity analysts anticipate a rise in delinquencies on UK mortgages as soaring rates put pressure on UK homeowners and buyers alike, but they do not forecast a resulting increase in loan losses for UK banks.

The answer has to do with the UK house price resilience and the predominance of loan-to-value ratios of below 80% on UK banks' books.

Writing in a note, they say "the bottom 30% of households by income, which represents c.5% of the mortgage books, could struggle to pay their mortgages if swap rates remain at current levels (>5%)."

This dwarfs the 2.8% of households that JPM says struggled to repay their debt during the GFC.

Despite all this, they expect bank provisions for loan losses to likely be contained.

The predominance of lower LTVs mortgages on banks' books mean house prices would need to correct by over 15% for loan losses to start rising significantly. So far they have corrected about 5% , says JPM.

".... banks only have c.5% of their books >80% LTV and <1% with LTVs >90%, which gives us confidence that we will not see a significant tick-up in mortgage write-offs."

The analysts estimate 35% of mortgages will re-price higher the first year, and 50% in 24 months, implying a risk of a 2-2.5% uptick in mortgage delinquencies in 2023 and 2024.

Rates would need to reach 7% for the next income bracket to be affected, they say, a scenario that would increase mortgages at risk to 9%.

Financial markets bet on Thursday that the Bank of England will raise interest rates to 6.5% early next year.

(Lucy Raitano)

SECTORS FLASH RED AS STOXX STAYS RISK-OFF (0820 GMT)

Europe's STOXX 600 is sinking 1.1% as a risk-off attitude permeates markets on hawkish Fed signals, Chinese growth worries and general recession fears.

All sectors are flashing red, but retailers, travel and leisure and real estate are the worst off sectors, all sinking 2.1%-1.9%.

Swedish video game developer Embacer Group is at the bottom of the index though, down 12.9% after raising $182 million in a discounted share issue.

Airlines feature heavily in the biggest losers on the STOXX 600, with the likes of Tui , Easyjet, British Airways owner International Consolidated Airlines and Air France all falling 2.7%-3.9%.

UK budget airliner Jet2 posted full year results and said it has seen a pick-up in demand for package holidays as Britons seek certainty on spending in a cost of living crisis.

Currys is taking a battering over in the UK, with shares down 13.3% and on track for their biggest daily drop since March 2020. The British electricals retailer suspended payment of full year dividend after reporting a 38% slump in annual profit.

Small cap oilfield services firm Hunting is moving in the opposite direction, soaring 22% after it raised its full year core profit outlook.

(Lucy Raitano)

EUROPEAN FUTURES SAG AS FED HAWKISHNESS BEARS DOWN (0631 GMT)

Confirmation that the absence of a Fed rate hike at its last meeting was a "skip" rather than "pause" came in the form of meeting minutes on Wednesday.

Almost all of the Fed officials agreed to skip June hike, and such hawkishness is set to weigh on equities.

Futures on the Euro STOXX 50 are down 0.6%, while those on the FTSE 100 and DAX are also down 0.5%.

Data on Thursday morning showed German industrial orders rose significantly more than expected in May, due to large scale orders of ships, spacecraft and military vehicles.

A few notable companies have reported results. British electricals retailer Currys reported a 38% fall in full year profit, while London-listed Ukraine-focused miner Ferrexpo said second-quarter iron ore pellet production was up 18%.

Recession fears remain at the forefront, after the U.S. yield curve hit its deepest inversion since 1981.

(Lucy Raitano)

FED HAWKS, CHINA TENSIONS KEEP MARKETS UNDER PRESSURE(0607 GMT)

U.S. policymakers are stealing the spotlight in the markets today, after the Fed cemented its hawkish credentials overnight and Janet Yellen started a trip to China just as Beijing restricts chip-making metal exports.

APAC investors clearly took notice, sending stocks sliding and bond yields higher in a signal that Europe should brace for the same.

The key takeaway from minutes of the Fed's June meeting overnight is that the unanimous decision to hold wasn't so unanimous after all, with the hawks just biding their time.

Traders see a July hike as pretty much assured, but it's still a coin toss whether there will be another after that.

There are no fewer than four U.S. labour market reports due in the next 48 hours, culminating with Friday's U.S. non-farm payrolls.

Meanwhile, the U.S. Treasury secretary touches down to start a three-day China visit. It's currently a balmy 36 degrees Celsius in Beijing, but the atmosphere is decidedly frosty after the usual red carpet was replaced with a warning that curbs on shipments of gallium and germanium were a "well thought-out heavy punch", but also "just a start".

China says it's not targeting any particular country, but the United States - with help from somewhat less-keen allies in Japan and the Netherlands - has ramped up restrictions on chip-tech trade with China for months.

Another tech war is also heating up between billionaires Mark Zuckerberg and Elon Musk.

Zuckerberg has been live, um, threading that sign-ups for the potential Twitter-killing app Threads passed 5 million in the first four hours.

No updates on the pair's proposed cage match.

Britain will report construction PMIs for June later in the day, as will Germany, which also has factory order figures for May on the release schedule.

Key developments that could influence markets on Thursday:

Yellen begins 3-day China visit

UK and Germany June construction PMIs, Germany May factory orders

US initial jobless claims, ADP employment report, JOLTS job openings, ISM non-manufacturing PMI, S&P Global PMIs

(Kevin Buckland)