WHY INVESTORS WILL CONTINUE TO SELL THE RALLIES (1010 GMT)
The de-rating from post-Covid peaks has seen Europe's PE ratio fall by over 30% but strength in earnings has provided a cushion, helping the region's equities drop only 20% in price.
But earnings now look toppish and given growing risks of an economic recession and the hawkish central banks, analysts anticipate more downside ahead, likely making investors keen to keep selling into any rally.
Among them is Barclays who expects earnings to be less of a tailwind for equities moving forward.
"Q1 results were strong, and while guidance was largely maintained, the outlook... has become more uncertain. Some of this appears to be already in the price, as the market has moved ahead of earnings and therefore implies lower revisions ahead," say strategists at the UK bank led by Emmanuel Cau.
"But until expectations are reset lower, if recession worries don't ease, we think that equity upside will be capped, at best, and that investors will continue to sell rallies," they added.
Barclays now expects 2022 EPS growth for Europe of 8%, below the 12% consensus.
(Danilo Masoni)
FLAT AS CAN BE (0740 GMT)
After 30 minutes of cash trading, the STOXX 600 was absolutely flat with traders visibly reluctant to engage further in yesterday's rebound which saw the pan-European index rise 1% on hopes China would be able to relax COVID-19 restrictions.
Of course, utilities (+1.6%) being the top sector this morning does say something about the cautious mood which prevails this morning.
The fact that the euro is on the backfoot against the dollar also hints to a mood rather unlikely to switch on risk-on.
Among individual stocks, TUI is by far the worst performer, losing over 10% after it announced its capital increase yesterday.
ABN Amro is a close second with an 8% drop after warning the war in Ukraine could have an indirect impact on its business.
Talking about banks, Societe Generale is among the sector's top gainer, up 0.6% after its CEO Frederic Oudea, who has held that position since 2018, said he would step down next year.
News that Commerzbank and Unicredit held merger talks didn't have much of an impact with shares in the German bank up 0.2% and those of the Italian lender down 0.2%.
Air France-KLM shares did get a slight boost, up 1.8%, after French shipping firm CMA CGM said it would take a stake in the airline as part of an air cargo partnership.
Siemens Gamesa on the other saw its shares jumps over 10% after sources told Reuters its parent company, Siemens Energy was preparing a bid to buy the third of struggling wind turbine maker it does not already own.
Another clear winner was Euronext, up 6% after unveiling record revenues last evening.
(Julien Ponthus)
EXTREME FEAR? SERIOUSLY? (0652 GMT)
One might think that with CNN's popular gauge of investor sentiment stuck on 'extreme fear', it would take some seriously good news to lift up markets these days.
But all it took yesterday was a whiff of COVID-19 optimism from China and decent U.S. retail data to send global equity markets back into a jolly bullish risk-on mode.
Tech and growth stocks that many investors would no longer touch with a barge pole outperformed with Microsoft, Apple Tesla and Amazon lifting the S&P 500 and the Nasdaq higher.
The upbeat mood was hard to reconcile with BofA's self-described "extremely bearish" monthly survey which showed fund managers had not been as underweight on stocks since May 2020.
Supposedly weary traders were also more than happy to knock the dollar further away from last week's two-decade high and dash into riskier currency bets across Oceania, Asia, Europe and even cyberspace with bitcoin claiming back $30k.
Adding to the upward thrust enjoyed by the dollar's rivals were fast rising bond yields displaying confidence central banks would be able to carry on monetary tightening despite lingering recession fears and Citi's economic surprise index falling in negative territory.
Even U.S. Federal Reserve Chair Jerome Powell insisting interest rates would go as high as needed to tame inflation didn't deter the buy-the-dip crowd.
As it stands this morning in Europe though, the latest batch of data might have the bulls hesitate before seeking to pursue this tentative bounce any further.
Consider this: in the last few hours Japan announced its economy shrank in the January-March period, China said new-home prices in April fell and Britain just unveiled its highest inflation reading since the 1980s with a whopping 9% in April.
Key developments that should provide more direction to markets on Wednesday:
- Australia Q1 wage gains underwhelm, take heat out of rate talk
-Philippine c.bank says ready to act on inflation pressures
-Dutch bank ABN Amro's Q1 profit beats estimates
- UniCredit, Commerzbank discussed merger in early-2022, but shelved plan
Aviva targets on track as Q1 general insurance sales rise 5%
- German Finance Minister Christian Lindner and EU Commission President Ursula von der Leyen attend German Economic Council annual press conference
-The President of the European Central Bank Christine Lagarde and Member of the ECB's Executive Board Fabio Panetta participates in G7 Finance Ministers' and Central Bank Governors' meeting
- Federal Reserve Bank of Philadelphia President Patrick Harker speaks on the economic outlook before virtual Mid-Size Bank Coalition of America CEO Talk
(Julien Ponthus)
RISK-ON HOLDING ON, JUST (0552 GMT)
European futures are holding the line in positive territory but with a modest 0.2% at the moment, it's not a given that cash trading will begin in the black.
There's indeed some pressure building up, particularly with Wall Street futures losing ground even if Asian equity markets seem set to finish the session with gains.
The fact that the dollar index is on a recovery track also indicates that traders may be on the lookout for some potential safe harbour ahead of the session in Europe.
(Julien Ponthus)