EUROPEAN MIDDAY BRIEFING - Inflation, Policy Worries Drag on Stocks
EUROPEAN MIDDAY BRIEFING - Inflation, Policy Worries Drag on Stocks Shares in Europe were slightly weaker Tuesday as sentiment continued to be buffeted by shifts in views about the strength of the global economy and the likely path for central banks and interest rates. Thereafter, Barclays expects a pause on grounds that inflation in the first quarter 2023 should be on a downward trend, "with clear evidence that the euro area is in a slowdown phase." For now, however, the persistence and upward surprises in inflation are increasing pressure on the ECB to normalize policy rates, Barclays said. "With yields at 3%, it shows that the market hasn't decided if we're going to have a recession or if we have one, how severe it's going to be, " said Julien Lafargue, chief market strategist at Barclays Private Bank. "A sustained rebound in activity in China will play a key role in shaping sentiment globally and could reinforce the arguments amongst the hawks within the ECB Governing Council of the need to act more aggressively and hike [interest rates] by 50 basis points at the meeting in July," wrote MUFG analyst Derek Halpenny.
公開済み : 3年前 沿って MarketScreener の Finance Markets
Shares in Europe were slightly weaker Tuesday as sentiment continued to be buffeted by shifts in views about the strength of the global economy and the likely path for central banks and interest rates.
A big concern is that central banks could act too aggressively as they combat inflation and trigger a slowdown in economic growth, or even a recession. On Tuesday, the Reserve Bank of Australia lifted its key policy rate by 0.5 percentage point, more than expected.
"We're still in this constant push and pull about where inflation is going to be, where growth is going to be, and whether we're going to be in a recession or not," said Fahad Kamal, chief investment officer at Kleinwort Hambros.
"The Australian central bank's move, it's a reminder that central banks can surprise on the upside. What does this tell us about what the Fed will do, what the ECB will do?," Mr. Kamal said. "More aggressive tightening directly equals a higher probability of a recession."
Barclays expects the European Central Bank to raise the deposit rate in increments of 25 basis points at each meeting from July to December, and once more in the first quarter of 2023, bringing it to 0.75%.
Thereafter, Barclays expects a pause on grounds that inflation in the first quarter 2023 should be on a downward trend, "with clear evidence that the euro area is in a slowdown phase."
For now, however, the persistence and upward surprises in inflation are increasing pressure on the ECB to normalize policy rates, Barclays said.
Stock futures edged down with investors waiting for more data on the state of the economy.
Trade figures for April are due Tuesday, while the key release this week is the consumer-price index on Friday, which will be closely watched for signals on whether inflation is weakening or not.
In other market moves, the yield on the benchmark 10-year Treasury note climbed to 3.060%, the highest level in nearly a month, before easing to 3.031%, compared with 3.037% on Monday.
"With yields at 3%, it shows that the market hasn't decided if we're going to have a recession or if we have one, how severe it's going to be, " said Julien Lafargue, chief market strategist at Barclays Private Bank. "That is what you would want to own if you expect a recession."
In premarket trading, Kohl's jumped more than 13% after The Wall Street Journal reported the department-store chain is in exclusive talks to be sold to retail holding company Franchise Group. The deal may value the company at around $8 billion.
Twitter declined 0.8%, extending Monday's slide after Elon Musk threatened to end his acquisition of the social-media platform, saying the company didn't comply with requests for data about spam accounts.
The dollar edged higher as stocks fell in Europe, and ING analysts expect the currency will remain propped up by prospects of further interest-rate rises by the Federal Reserve and evidence of a solid U.S. economy.
"We think the dollar will remain broadly supported on balance, as the underlying stories of Fed tightening and good U.S. economic momentum continue to put a floor under the greenback."
Sterling was lower after Monday's close no-confidence vote for Boris Johnson, which he survived by 211-148 votes to remain as prime minister.
"The triggering of the confidence vote itself along with the fact that 41% of Tory MPs failed to back him [Johnson] are both politically corrosive, leaving the Prime Minister wounded," said Victoria Scholar, head of investment at Interactive Investor.
The pound was "suffering amid a lack of international investor confidence in the U.K. both economically and politically."
Building evidence of an improvement in sentiment over China's economic prospects as lockdowns end is positive for the euro, said MUFG Bank.
"A sustained rebound in activity in China will play a key role in shaping sentiment globally and could reinforce the arguments amongst the hawks within the ECB Governing Council of the need to act more aggressively and hike [interest rates] by 50 basis points at the meeting in July," wrote MUFG analyst Derek Halpenny.
It will add to the "hawkish" tone Christine Lagarde is likely to convey in signalling monetary policy tightening at Thursday's meeting, Halpenny said.
Eurozone government bonds barely moved in early trading, with investors awaiting this week's ECB meeting and likely confirmation of an end to the asset purchase program and a first interest-rate rise in July.
Societe Generale said uncertainty about the ECB's terminal rate is likely to ensure volatility in eurozone government bonds persists.
The ECB's recent unusual "pre-commitment" in which it set out steps for the next three months, "clearly aims at limiting EGB [eurozone government bond] yield volatility," said Societe Generale's rates strategists, adding that the market is already challenging this gentle normalization roadmap.
The ECB's vague approach to a backstop on spreads means the EGB market must first shift into crisis mode and unwarranted spread widening before the central bank acts, the strategists added.
Eurozone inflation-linked sovereign bonds continue to outperform the overall market but their year-to-date outperformance diminished in May as inflation expectations weakened, said Elmar Voelker, senior fixed income analyst at LBBW.
The year-to-date outperformance of eurozone linkers shrank to around 7% in May after the phase of "breathtaking relative strength" in the first four months of 2022, Voelker said.
"While conventional sovereign bonds slowed their price drop somewhat, linkers encountered a strong headwind for the first time this year with a month-on-month decline of around 4%."
According to the iBoxx EUR Sovereigns Inflation-Linked index, linkers have achieved a performance of minus 3.4% since the start of the year compared with minus 10.9% for the sovereign bond market as a whole.
Oil prices ticked slightly higher in Europe on doubts that OPEC will be able to meet its increased production targets
While OPEC+ has agreed to increase its collective output, potentially easing tightness in the market, many cartel members are expected to be unlikely to meet their quotas, leaving a gap between what the group targets and ultimately produces.
"While the new increased monthly targets continue to be driven by proportional contributions from all participants (including Russia), it is unrealistic to expect an increase close to the headline figure," wrote SPI Asset Management.
Global prices for natural gas and LNG look set to rise as China's exiting of its Covid-19 lockdowns boosts demand, said Goldman Sachs. "We believe the recent increase in Asian LNG buying will be the next bullish catalyst for the global gas markets."
Other factors such as extreme heat in India and Pakistan, and nuclear power plant maintenance in Japan, are also lending price support, Goldman Sachs said. With diesel prices now higher than gas, there is also incentive for Asian consumers to pick gas over other fuels.
Venezuela is gradually returning to international oil markets after Eni and Repsol were given the green light from Washington to resume sourcing oil from the sanctioned South American country, tanker owners at the Posidonia shipping conference in Athens told WSJ. Washington's blessing comes as Europe tries to cut its energy dependence from Moscow.
"The imports will be limited in the beginning, but could take off by the end of the summer," one owner that runs more than two dozen tankers said.
Washington is also looking at a request by Chevron to resume shipments from Venezuela, two years after the U.S. tightened oil sanctions on Caracas that effectively banned oil shipments to Western markets.
Base metals weakened, under pressure from a stronger dollar, with investors also waiting for more signs that China's easing pandemic lockdowns were lifting economic activity.
Jefferies is cautiously optimistic that a gradual recovery in Chinese commodity demand is coming, as it increased its iron-ore and coal price forecasts, and upgraded miners including BHP, Rio Tinto, Anglo American, Vale and South32 to buy from hold.
Jefferies reckons a stimulus-induced shift in China should partly offset weaker demand elsewhere. Of course, there are a number of threats to commodity demand, and mining stocks will consequently be volatile, it said.
"Macro risks are still clearly elevated as an economic hurricane could be coming, but we would buy the miners to ride out the storm and maximize leverage to the subsequent recovery."
Commonwealth Bank of Australia analyst Vivek Dhar said China's aim to curb steel production again in 2022 will likely weigh on the country's output later this year, although the extent to which its production needs to fall heading into year-end should be milder than in 2021.
"That should correspondingly see a smaller fall in iron-ore prices" versus late-2021.
Dhar has forecast that iron ore will fall to $100 a metric ton in the fourth quarter. Ultimately, "iron-ore prices remain in China's hands," said Dhar.
German manufacturing orders plunged in April, as the Ukraine war continued to weigh on the sector.
Manufacturing orders fell 2.7% on month in adjusted terms, according to data from the German Economics Ministry released Tuesday.
MFE-MediaForEurope NV is raising its bid to take all remaining shares in Spanish subsidiary Mediaset Espana Comunicacion SA, whose board has agreed to recommend the new offer, the Italian broadcaster said late Monday.
MFE is increasing the cash portion of the offer to 2.16 euros ($2.31) a share from EUR1.86 previously, as it aims to take control of the remaining roughly 44% stake in Mediaset Espana it doesn't already own.
トピック: Markets, Inflation