VALUE OR GROWTH: HOW ABOUT BOTH? (1045 GMT)
The age-old debate of value versus growth stocks never seems to go away and has remained prevalent as the Fed embarks on its most aggressive tightening cycle in years.
Analysts at Man Group question whether you still need to choose between the two.
Man highlights that the valuation spread – as measured by the difference between the highest and lowest U.S. equity quintiles by price-to-book ratio – has rapidly declined, and now stands at 0.31 standard deviations above the long-term average.
"This implies a Value outperformance: for the spread to contract, the cheapest stocks must rise in price, the most expensive must sell off or both can occur," Man Group says.
"However, at the same time, the price-to-sales ratio of the 75 fastest-growing stocks in the U.S. is now just under three," Man Group adds, which they say provides an attractive entry point.
With growth stocks relatively cheap and value stocks on a roll, Man Group asks: could the answer to value versus growth debate now be to buy both?
(Samuel Indyk)
HEADWINDS AIN'T MISSING (1021 GMT)
The recovery from last month's lows has been remarkable for size and speed and while several investment banks see some good reasons for the market to stay supported, others are more wary about prospects for risky assets.
Among the latter are Credit Suisse strategists led by Andrew Garthwaite who find that there are plenty of headwinds for equities. So, here you go:
1. Unemployment is now below full employment. This has been a ‘necessary’ condition for nearly 80% of market peaks.
2. More tightening than expected. Monetary conditions seem very loose versus the output gap
3. Historically, when inflation rises above 3% equities de-rate (inflation expectations are close to this level)
4. No potential upside on our ERP model (for first time since 2016 when equities traded sideways)
5. Credit is flashing warning signals
6. Inverted yield curve 2 year to 10 year is not a problem unless (as is the case) the profit share of GDP is very high and unemployment is below full employment
All that being said, the CS strategy team doesn't believe investors should be underweight.
"Major market peaks require monetary conditions to be tight (2% Fed Funds) and occur around recessions, and recession come c10 months after the 3 month inverts relative to the 10 year (likely in Q4)," they wrote.
(Danilo Masoni)
SHORT DAX, LONG FTSE (0849 GMT)
That in summary is what investors in European equity future markets have been doing as of late, according to Citi data, likely underscoring preference for commodity exposure at the expense of energy-reliant businesses. "European equity futures have generally been net short since the beginning of the year, with DAX (-3.8) the most extended short... In contrast FTSE (+2.0) futures long positioning continues to rise, albeit at a slowing pace," wrote analysts at the U.S. bank including Chris Montagu in a weekly update.
In one interesting detail, Montagu and team highlight how profit margins on the German index shorts are very small "and a swing in either direction, could easily push profit margins on either side, leading to a potential increase in volatility".
As for the FTSE, they say longs are in profit, but margins have narrowed from the 5% seen last week.
Reprinted with permission of Citi Research. Not to be reproduced.
(Danilo Masoni)
EUROPE MOSTLY HIGHER ON TECH, ENERGY GAINS (0741 GMT)
European shares were trading mostly higher in early trade on Tuesday with oil & gas stocks some of the better performers as expectations of more sanctions on Russia lifted oil prices.
Tech shares were also strong, a day after Elon Musk sent Twitter shares higher by 27% after announcing a 9% stake in the social media company.
The STOXX 600 was up 0.3%, the DAX was up 0.4%, the FTSE 100 was little changed and the IBEX was up 0.5%.
Shares in German real estate bank Aareal Bank rose 3.6% at the open after some of the company's top shareholders agreed to an increased buyout offer from Advent International and Centerbridge Partners.
Darktrace shares fell over 7% after JPMorgan started the cybersecurity company at underweight with a price target of 400 pence per share.
Here's the picture at the open:
(Samuel Indyk)
THE FLIGHT OF DOVES (0656 GMT)
Even the most dovish central banks are now caving in, and accepting the need to act against persistent inflation. The latest case in point is the Reserve Bank of Australia.
Earlier on Tuesday, the RBA opened the door to its first interest rate hike in over a decade, dropping a pledge to be "patient" on policy.
Markets were already positioning for higher Australian rates, but the RBA's pivot nonetheless pushed the Aussie dollar to its highest level since June.
Another dove, Sweden's Riksbank, too changed tack recently and started talking about the need to hike rates this year.
With some European Central Bank policymakers pushing for tighter policy in 2022, the Bank of Japan and the Swiss National Bank are now the outliers. But watch that space.
Stock markets, meanwhile, are holding their ground. Asian shares rose to the highest in more than a month while European and U.S. stock futures are flat to a touch firmer.
On the geo-political front, the likelihood of more Western sanctions to punish Russia for the killings of Ukrainian civilians is lifting oil and hurting the euro.
The United States ratcheted up the pressure on Monday, stopping Russia from accessing more than $600 million out of reserves held at American banks to pay bondholders.
And it's also time to start paying attention to France, which holds the first round of a presidential election this weekend.
Far-right candidate Marine Le Pen's presidential campaign has gained momentum. She captured 48.5% of voter intentions in a poll of a likely runoff against incumbent Emmanuel Macron, the highest score she has ever notched.
Key developments that should provide more direction to markets on Tuesday: - Final March PMIs - EU to sell new 20-year green bond - NATO Secretary General Jens Stoltenberg gives news conference - German foreign minister Baerbock meets U.S. Secretary of State Blinken - EU Economic and Financial Affairs Council meeting. - ECB speakers: Vice-President Luis de Guindos - Federal Reserve speakers: governor Lael Brainard; Minneapolis Fed President Neel Kashkari; New York Fed President John Williams. - U.S. trade balance/ISM index - Romania Central Bank to raise interest rates
(Dhara Ranasinghe)
EUROPE SET FOR LOWER OPEN AS MORE SANCTIONS EYED (0628 GMT)
European equity futures were trading lower on Tuesday morning as the situation in Ukraine continues to provide a headwind, with the United States and Europe planning new sanctions over civilian killings.
Asia-Pacific markets were relatively steady with China, Hong Kong and Taiwan markets closed for various holidays.
In Australia, the RBA kept their main interest rate unchanged at 0.1% but dropped a previous pledge to be "patient" on policy, opening the door for a first rate increase in over 10 years.
Eurostoxx 50 futures, DAX futures and FTSE 100 futures are all down 0.2%, while IBEX futures are little changed.
German-based real estate bank Aareal Bank will be one to watch at the open after major shareholders agreed to sell their holdings for 33 euros per share to U.S.-based Advent International and Centerbridge Partners.
(Samuel Indyk)