- The STOXX 600 down more than 2%
- Wall Street futures in the red
- Technology loses more than 4%
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SIX REASONS TO BUY UK SHARES (1315 GMT)
Morgan Stanley analysts reiterate a long on London blue chips (.FTSE) listing six facts that speak in favor of UK stocks.
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Here they are:
1) UK equities have historically tended to outperform during risk-free periods as the London index has the largest defensive exposure of any major country, accounting for 37% of UK market capitalisation.
When global equities have fallen over the past 20 years, the MSCI UK index has outperformed the MSCI Europe 68% of the time.
2) UK equities tend to benefit from higher real yields.
3) FTSE 100 companies are cheap. The blue chip index
is the cheapest major stock market compared to its own 10-year history.
4) Higher dividends.
MSCI UK’s 3.6% dividend yield is twice that offered by MSCI World.
5) UK EPS expectations at -3% for 2022 and 2023 are very low. By comparison, MSCI EMU EPS growth expectations are around +8%.
6) Soaring oil prices are “very positive” for UK EPS, as around a quarter of UK earnings come from the energy sector.
THE FED AND THE RISKS OF A LOWER DOLLAR (12:21 GMT)
Conventional wisdom holds that monetary tightening by the Federal Reserve increases the value of the dollar.
But the situation could be a little more complicated if the Fed were to reduce its balance sheet more aggressively than expected, after generously injecting monetary stimulus into the economy during the pandemic.
ING says in a research note that the Fed’s announcement after this week’s policy meeting could “bring downside risks” to the greenback.
Its economists see no reason for the Fed to continue buying assets and expect the central bank to “announce the immediate conclusion of its QE asset purchase program.”
“This can be interpreted by markets as an indication that the Fed’s balance sheet will do the heavy lifting in the process of policy normalization, which could throw some cold water on current expectations of four rate hikes. by the end of the year,” they state in a research note.
“This should result in a slowing or marginal reversal of the dollar’s recovery, although an escalation of geopolitical tensions in Ukraine would have the exact opposite effect on the greenback,” they add.
The chart shows the dollar index rising as investors bid safe haven currencies on heightened tensions between Russia and the West over Ukraine.
MANY SHADES OF MARKET STRESS (1018 GMT)
There was little doubt early this morning that this session would start in the red, but it’s probably fair to say that market stress is exceeding expectations.
The STOXX 600 gradually increased its losses to -1.8% and is back to levels not seen last month:
Volatility is also back with a vengeance as you can see below:
Much of the attention has been on the tech sector lately, with rising yields reducing the appeal of growth stocks and making investors reluctant to continue paying hefty premiums for them.
As the following chart shows, the European tech index briefly touched July lows:
While the problems in the tech sector have been widely blamed on the rise in yields, it is quite difficult to do so this morning with the yield of the German Bund falling to -0.1%:
It’s also always hard to read what the fate of bitcoin tells us about the state of the markets but the king of crypto falling below $34,000 for the first time since July can’t be good:
A hint of optimism could be found in UBS GWM’s morning note which does not see current volatility as a long-term threat.
“For longer-term investors, we don’t think it’s a bad thing if market volatility takes some of the air out of the more speculative corners of the market,” Chief Investment Officer Mark Haefele wrote.
“It’s also not a bad thing if the current volatility means that some secular growth stocks are being offered at their best prices in months,” he also said, adding that the macro environment remains supportive.
TELCO M&A FIGHTS THE BAD (08:36 GMT)
There’s not much to cheer about this morning in European equity markets, so let’s start with the good news.
The telecommunications sector is one of the few to benefit from a steady flow of purchase orders, with Vodafone up almost 4% after a Reuters report that it is in talks with Iliad to combine their respective businesses in Italy.
The telecommunications index is up 0.8%, with BT, Orange and Telecom Italia benefiting from some increase in cross-readings.
Unilever is another big gainer, rising around 5% following reports that activist investor Nelson Peltz has taken a stake in the consumer goods maker. It comes after Unilever appears to have dropped out of pursuing GlaxoSmithKline’s consumer healthcare business.
Another stock that stands out this morning is Renault with a jump of 3.3% after Reuters announced that the French manufacturer and its partners Nissan and Mitsubishi plan to triple their investments in electric vehicles.
That’s mostly the good news with most sectors and regional exchanges in the red as the pan-European STOXX 600 slips 0.3% and looks set for a fourth straight week of losses.
As you can see below, there are few stocks making gains among the biggest movers this morning:
BEAR AT THE DOOR (07:59 GMT)
With a 14% drop from its November high, the Nasdaq is not only deep in correction territory, it is also now within striking distance of the 20% drop bar that defines a bear market.
And while a tightening cycle by the US Federal Reserve might be expected to weaken technology and other growth sectors, market stress is actually spilling over to Wall Street.
The S&P 500 just suffered its biggest weekly loss since the March 2020 COVID-19 stock market crash and is less than 2% from a correction.
Friday’s sell-off came against the backdrop of a sharp drop in US Treasury yields, which seems to suggest higher interest rate expectations may not be the only factor weighing on the market. sentiment ahead of this week’s Fed meeting.
So far, markets have been happy enough to ignore simmering tensions between Russia and the West over Ukraine, but that could change as President Joe Biden weighs options for bolstering US military assets. in Eastern Europe.
Against this backdrop, the stakes are rapidly rising for fourth-quarter earnings, especially after high-visibility stocks such as Netflix and Goldman Sachs disappointed investors.
Mega-caps due to update the market this week include IBM (IBM.N), Microsoft (MSFT.O) Tesla (TSLA.O) and Apple (AAPL.O).
As the week begins, the stress is palpable in most markets – the MSCI index of Asia-Pacific ex-Japan stocks (.MIAPJ0000PUS) is down more than 1% while South Korean stocks have recorded their most sharp decline in five weeks and European futures are in the red .
Meanwhile, the dollar index rises and bitcoin drops to $35,295, nearly 50% below its November highs.
Key developments that should further guide markets on Monday:
– Auction of two-year notes in the United States (54 billion dollars)
-Sale of EU bonds
-US profits: Halliburton, IBM, Logitech
– European results: Dior, Swatch, Phillips
-Philips expects summer recovery after supply chain issues Read more
– German Lufthansa is in talks to buy 40% stake in Italian ITA Airways – sources
NEW WEEK, SAME TREND (0705 GMT)
European stocks are set for a tough start to the week, with futures pointing to losses of around 0.5% after Friday’s selloff on Wall Street.
Asian stocks fell and concerns over a possible Russian attack on Ukraine are rocking sentiment as investors prepare for the Fed meeting this week.
All eyes are now on IBM (IBM.N), Microsoft (MSFT.O) Tesla (TSLA.O) and Apple (AAPL.O) who are due to update the market this week.
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