EUROPE NOON BULLETIN – Stocks mixed, investors await Powell’s comments

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European equities were mixed, dominated by stocks of travel, leisure and construction companies.

France’s CAC 40 rose after a pre-election debate in which incumbent, pro-business president Emmanuel Macron was judged by polls to have beaten far-right challenger Marine Le Pen.

Investors said the broader markets were on hold ahead of Mr Powell’s appearance at a debate on the global economy, hosted by the International Monetary Fund and scheduled to start at 1 p.m. ET.

European Central Bank President Christine Lagarde will also attend alongside IMF Managing Director Kristalina Georgieva.

Fund managers are bracing for the Fed to hike rates quickly this year to stifle inflation at its highest pace in decades. This change hurts government bonds and more speculative corners of the markets that have benefited from years of accommodative monetary policy.

Edward Park, chief investment officer at Brooks Macdonald, said investors are all the more eager to hear from Mr Powell because of emerging signs that inflation could peak. “That’s why we’re seeing a slight rotation in the US 10-year yield,” Park said.

However, he said he did not expect a big change in tone from Mr Powell, following a series of Fed officials who argued for aggressive rate hikes.

Actions to watch:

The rise in Siemens Gamesa shares on Wednesday after its guidance was withdrawn could reflect an increased likelihood and upside risk of Siemens Energy’s minority buyout of the company, Citi analysts said.

“This price action suggests in our view that investors believe this further paves the way for a deal,” the analysts said. “We view a minority equity buyout of SGRE as a logical solution to SGRE’s challenges.”

Sandvik posted strong first-quarter results, with mining orders 14% ahead of expectations and the main driver of the 9% overrun in group orders, Jefferies analyst Rizk Maidi said in a note.

“Mining investment demand should continue to do well even as we enter a stagflationary environment.” Jefferies noted that order intake for Sandvik’s fabrication and machining solutions business continued on a positive trajectory in the first two weeks of April. Consensus expectations for 2022 have now been rebased and the stock is too cheap at the current valuation, Jefferies said as he reiterated a buy rating on the stock and a target price of SEK 273.

Economic overview:

Eurozone consumer confidence in April deserves attention after the massive decline in March following the start of the Russian-Ukrainian conflict, UniCredit Research said.

Consumer confidence in the region fell to minus 18.7 in March from minus 8.8 in February. The decline of nearly two standard deviations last month was the second largest since the euro’s inception; it was only during the first wave of Covid-19 cases that sentiment deteriorated more sharply, UniCredit Research added.

Economists polled by The Wall Street Journal expect euro zone consumer confidence to fall to minus 20.0 in April. The indicator is expected at 1400 GMT.

S&P is likely to improve on Greece on Friday or at the next review on Oct. 21, Citi rate strategists said.

“This view is informed by recent improvements in Greece’s macroeconomic outlook, with IMF loans having been repaid, a stable political environment and signs of a strong recovery in tourism revenues this year.”

S&P currently rates Greece at ‘BB’ with a positive outlook. “An upgrade could be particularly favorable for Greek government bonds, with only one additional upgrade needed to reach IG [investment grade]“, said the strategists. Fitch, which raised Greece’s ‘BB’ rating outlook to positive in January, could also follow suit, they said.

The rise in the overall manufacturing index suggests French manufacturers quickly weathered the initial shock of the war in Ukraine and the associated rise in inflation, Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said in a note.

French manufacturing sentiment came in at 108 in April, down from a revised 107 in March. However, the index’s rise didn’t reverse March’s decline and not all of the details are pretty, Debono said.

The detail shows that orders rebounded, but the main driver of the rise in the manufacturing index was an increase in finished inventories, which companies believe are close to normal levels, Debono said. However, production expectations for the industry as a whole have plunged, she said.

US markets:

Stock futures rose as investors awaited comments from Federal Reserve Chairman Jerome Powell on the global economy and earnings from big US companies.

Before the bell, Tesla shares were up 7.2%. The electric vehicle maker reported $3.3 billion in quarterly profit on Wednesday, its highest profit yet.

Earnings are expected from Blackstone, American Airlines Group and AT&T before markets open, followed by Snap and PPG Industries after the closing bell.

As of 8:30 a.m. ET, weekly Unemployment Insurance filings data is expected to show new claims fell to 180,000 in the week ended April 16.

Forex:

The dollar lost ground in Europe after rising 3% so far in April, with yields on longer-term Treasuries appearing to have stagnated, although the currency’s pullback is not lasting, ING said.

“3% appears to be a hurdle for the long end of the US Treasury curve, as does the 0% level for the 10-year US Treasury real yield. [yield adjusted for inflation expectations]“said ING analysts.

as interest rate hikes by the Fed remain strong, so the current decline in the dollar should prove temporary, analysts said.

The euro hit a one-week high against the dollar after ECB Vice President Luis de Guindos said a July interest rate hike was possible, data showed. according to a Bloomberg report.

He also said there was no reason why the ECB’s asset purchase program could not end in July, although he noted that inflation was close to a peak. and would slow in the second half, according to the report.

Board of Governors members Martins Kazaks and Joachim Nagel also called on Wednesday for a rate hike in July.

The pound could react to a speech by Bank of England Governor Andrew Bailey later in Washington DC as he could provide interest rate advice, Ebury said.

BOE policymakers have appeared cautious in recent weeks, but the March inflation report and the likelihood of an even higher figure in April suggest the bank “can’t hold the line any longer”, it said. Ebury analyst Matthew Ryan in a note.

Any “hawkish overtones” of Bailey signaling further rate hikes should be positive for the pound, as a repeat of recent rhetoric could hurt the currency, he said.

The Czech National Bank may indicate at its next policy meeting on May 5 that it plans to cut interest rates in the future following a series of rate hikes, potentially weakening the Czech koruna, ING said.

“The new CNB forecast will show a sharp rate cut later, on top of rate hikes now,” ING analysts said.

Ahead of the meeting, however, speeches from CNB policymakers early next week should fuel market expectations for further rate hikes, supporting the krona, they said.

EUR/CZK is expected to trade in a 24:30 to 24:50 range ahead of the meeting, but the meeting itself will pose a possible negative event risk for the krona, they said.

Obligations :

Yields on benchmark 10-year Treasuries climbed to 2.857% from 2.836% on Wednesday when they approached 3% before falling back.

The yield on two-year bonds, which are particularly sensitive to expectations of where the Fed will set rates, rose to 2.624% from 2.577%.

Christine Lagarde and Jerome Powell, who will attend an International Monetary Fund seminar later, are unlikely to deliver any significant new messages to investors, UniCredit Research said. “It’s hard to imagine either sending a message that would fuel any overhaul of bond markets.”

That said, UniCredit considers the amount of monetary policy tightening in US and Eurozone markets to be overstated. For the eurozone, money markets are pricing nearly 70 basis points of interest rate hikes for 2022, according to data from Refinitiv.

French government bond prices fell at the start of European action, but less than their major counterparts, as investors believe Emmanuel Macron performed better in Wednesday’s televised debate than Marine Le Pen.

“Macron is considered to have delivered the most compelling performance,” said ING senior rate strategists Antoine Bouvet and Benjamin Schroeder.

“This should further help French spreads in particular to rally as the tail risk of a Le Pen win is increasingly priced in.”

The yield on the benchmark 10-year gilt traded higher ahead of an IMF seminar on the global economy.

“After a massive sell-off so far in April, sovereign bonds have pared losses in the past 24 hours as investors today await comments from Powell and Lagarde, who will appear together in an IMF panel on the global economy in New York afternoon,” Deutsche Bank said.

Amenities:

Oil prices rose nearly 2% in Europe in reaction to US inventory statistics on Wednesday which showed a sharp drop in inventories.

Industrial and precious metals prices were slightly lower at the start of trade in London as weak economic sentiment pushed investors back.

China’s continued lockdowns have further weakened traders’ sentiment that the economy is unlikely to rebound in the near future.

This despite stronger industry data from the International Aluminum Institute, which noted that global aluminum production fell from 182.8 kt per day in February to 183.6 kt per day in March.

   
 
 

EMEA TITLES

Eurozone inflation hits record high of 7.4%, but below preliminary reading

The euro zone’s annual inflation rate rose further in March, marking the highest figure on record although it was below the level of the preliminary reading.

(MORE TO BE FOLLOWED) Dow Jones Newswires

April 21, 2022 06:11 ET (10:11 GMT)

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