LIVE MARKETS Boris angst anyone?
- European stocks in the black
- Philips plunges on profit warning
- All eyes on U.S. CPI
- Wall Street futures tick higher
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BORIS ANGST ANYONE? (1035 GMT)
Never has Boris Johnson’s premiership felt so fragile and whether he can politically survive the 2020 lockdown ‘partygate’ is anyone’s guess.
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“The bookies have sharply marked up the probability of Johnson leaving this year (58%) and the probability of him seeing out the full parliamentary term is back at the lows of late last year (30%)”, notes Adam Cole, chief currency analyst at RBC Capital Market.
Yesterday, analysts at the Eurasia group lifted to 45% the probability of the replacement of Boris Johnson in the second half of 2022.
Yet, there’s little palpable stress across UK assets with the FTSE 100 trading a tad higher than the pan-European STOXX 600.
Sterling is just slightly lower against the dollar, but so is the euro.
“So far, GBP seems indifferent to this rise in political uncertainty”, Cole notes, wondering whether markets will remain this calm moving forward.
The latest reading on UK five year credit default swaps, a risk barometer from a foreign investor perspective was trading at a relatively low 10 bps.
Though they have ticked higher from December, they remain far below the 2021 highs of 18 bps, indicating investors remain sanguine about the impact of Johnson’s departure on markets.
Here’s the chart from Adam Cole’s note:
And here’s some reading:
Party over? UK PM Johnson faces crunch day in parliament read more
(Julien Ponthus and Saikat Chatterjee)
A WHIFF OF OPTIMISM AHEAD OF U.S. INFLATION (0842 GMT)
The upbeat sentiment which lifted Wall Street and Asia is now doing its thing across European bourses which are all well into positive territory.
The pan-European STOXX 600 index is up about 0.5% and at the notable exception of defensive pharmaceutical stocks, the vast majority of sectors are posting gains.
Bucking the bullishness, one stock stands out.
Philips has sank by about 10% following a profit warning on the back of parts shortages, increased recalled devices provisions and higher supply cost.
Most of the biggest movers are however in the black with Martin Sorrell’s S4 Capital for instance rising 7.3% after it reported trading well ahead of its previous guidance.
Rexel is jumping more than 3% after it raised its 2021 guidance while British homewares retailer Dunelm jumped 7% after announcing that its full-year profit was expected to be “materially ahead” of market expectations.
More good news for UK retail with supermarket group Sainsbury’s up 2% amid stronger-than-expected food sales over Christmas.
HEADING TOWARDS THE FLOATATION MARK (0749 GMT)
European futures are in an upbeat mood this morning and it seems the continent’s main equity benchmark could recoup most of its 2022 losses in morning trading.
The STOXX 600 is down close to 1% so far this year but futures are rising close to 0.9% which would fill in most of the gap.
Of course, all eyes are on the U.S. inflation data expected later today and the mood could obviously change quickly after that.
There’s also plenty of corporate news to digest, such as British supermarket group Sainsbury’s raising its full-year profit forecast and Norwegian energy major Equinor announcing an impairment charge of around $1.8 billion.
On the tech front, French cloud computing company OVHcloud reported a rise of 13.9% in its first-quarter revenue and stuck to its full-year objectives, while Europe’s largest meals delivery company Just Eat Takeaway.com also maintained its financial forecasts.
HUMBLE AND NIMBLE (0734 GMT)
“We are going to have to be humble but a bit nimble”.
Arguably not much of a hint on the timing of rate hike lift-off but investors seemed happy enough with Federal Reserve Chair Jerome Powell’s congressional hearing yesterday to eagerly buy the dip on Wall Street. read more
The upbeat sentiment, helped by the Bank of Japan offering its most optimistic view of the country’s regional economy in more than eight years, spread to other asset classes with commodities and oil ticking higher while the dollar hit a six-week low and Asian bourses thrived. read more
Quite crucially, following the Nasdaq‘s positive close, tech stocks in Hong Kong made a 4% jump, which suggests that stock pickers aren’t yet writing the sector off just yet.
The first days of trading of the year had indeed exposed some early cycle teething problems with volatility hitting tech shares for which investors are typically reluctant to pay hefty premiums when interest rates are headed higher.
But while some traders seem to be comfortable with rising bond yield and gently biting into the comparative appeal of stocks, there’s still some palpable angst on how smooth the tightening cycle will prove to be for markets.
Of course, today’s Chinese factory-gate prices and consumer inflation rising more slowly than expected in December came as a relief but there’s another major test coming up today for the smooth tightening cycle narrative. read more
Apart from German wholesale inflation, U.S. December consumer inflation data will be released with headline CPI expected to hit a whopping 7% year-on-year.
As spectacular as it might be the reading seems currently priced in and expectations are still for inflation to gradually peak as we move further into 2022.
U.S. benchmark 10-year yields have slightly retreated from the 1.808% reached on Monday, the highest since January 2020.
In Europe, where the European Central Bank is nowhere near a rate hike and at the earliest expected to move in 2023, German bond yields are reluctant to creep out of negative territory.
Key developments that should provide more direction to markets on Wednesday:
-NATO ambassadors and Russian Deputy Foreign Minister Sergei Ryabkov meet
-ECB Board Member Andrea Enria and Fed Minneapolis President Neel Kashkari speak
-Emerging markets: Poland Central Bank
-US 10-year note auction
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