LIVE MARKETS Positioning bingo | Reuters
- European shares up 2%
- Travel & leisure index leads gainers
- Fed policy meeting in focus
- Nasdaq futures rise
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POSITIONING BINGO (1143 GMT)
Wild market reversals, volatility bursts, indexes getting in and out of correction territory: early 2022 is a tricky time to position a portfolio in the right direction.
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The Fed’s tightening cycle and the geopolitical tensions over Ukraine seem to have downgraded the pandemic into a secondary concern but consensus is that the macro environment is still a good one.
Equity research this morning painted an overall reassuring picture for global stock markets.
UBS GWM argued that fixed income markets largely refusing to track the stress in stocks suggest there is not a broad concern on the actual growth outlook.
“The selling in equities probably reflects concerns about valuations and positioning, an idea reinforced by the fact that some of the heaviest selling in risk assets has been in the most speculative parts of the market”, they argued.
Citi believes the 8/18 red flags on its ‘Bear Market Checklist’ suggests investors should buy into this dip, especially outside the U.S.
The Barclays European strategy team “find it premature to position for recession” and while they warn that more pain is always possible in the sort term, they advise to stay focus on the big picture.
“We expect activity to bounce into Q2 post Omicron, and look for earnings to reassure”, they wrote, adding that investors should adopt a barbell approach, selectively buy on dips and hold a core cyclical/value tilt towards the reopening trade.
Value is also the name of the game at Bernstein which issued a note supporting a further tactical bet on value stocks.
Jim Solloway a strategist at SEI reminded investors that corrections are often temporary and don’t necessarily imply a change in the direction of travel.
“Corrections are a temporary setback for a long-term investment strategy, and about half of all corrections since 1966 have resolved themselves in less than five months”, he said.
Here’s Citi’s Global Bear Market Checklist:
Reprinted with permission of Citi Research. Not to be reproduced.
LONDON FX TRADING FALLS FROM RECORDS (1005 GMT)
Trading on London’s foreign exchange market reached $2,757 billion in average daily turnover in October, the Bank of England said, a small fall compared to the previous survey as demand for buying and selling currencies remained strong.
In its semi-annual survey of turnover in the world’s largest foreign exchange centre, the BoE said average daily reported UK FX volumes decreased a 6% in October from a record high touched in April 2021 of $2,948 billion. read more
This was due to a fall in trading of swaps, and spot products, while turnover in outright forwards were mixed.
BoE reported a 13% increase in sterling activity in October 2021 from April, with the sterling/dollar pair maintaining its position as second most commonly traded currency pair.
The top traded currency pair continues to be euro/dollar, which however saw a 15% decrease from April. Dollar/Yen, still in the top three, slid 17% since the previous survey.
STOXX RALLIES, TRAVEL STOCKS FLY (0853 GMT)
It looks like investors have set aside any caution ahead of the Federal Reserve’s policy decision later on today to get back into European equity markets with more conviction.
The STOXX 600 (.STOXX) is rising 1.5% after 50 minutes of trading, the euro zone volatility index is below 28 points, and all sectors across the region are trading in the black.
The travel and leisure index is up 4%, leading gainers as investors grow confident about the sector’s recovery potential.
Take Siftel: “We believe the combination of vaccinations, forthcoming COVID drugs, milder symptoms of the Omicron variant and increasing political laissez-faire sets the scene for a dynamic traffic recovery this summer and the crisis potentially moving to its end-game”.
Oil stocks, miners and banks are all up more than 2%.
NO TIME TO WAVER, CHAIR POWELL (0805 GMT)
Some previous market tantrums over a looming tightening in policy made central bankers think twice about taking away hefty monetary support. Yet, for the Federal Reserve, concluding a two-day meeting later on Wednesday, things are now different.
With inflation raging at 40-year highs, the Fed is unlikely to backtrack on its intent to raise interest rates and will almost certainly flag a March rate hike later on Wednesday.
Yet, the almost 9% slide in the S&P 500 this month and the flattening of the U.S. yield curve are not good indicators of sentiment towards the economic outlook, and may temper the case for more hawkish stance from the Fed.
The fine line between taking action to contain inflation but not tightening policy too fast that it brings the recovery to a quick end, is exactly the line Fed chief Jerome Powell has to walk. Markets will be watching his every step.
Meanwhile, odds are split on whether or not the Bank of Canada will hike rates for the first time since 2018 when it meets later in the day. The bank may need to take Omicron’s wrath into account while deciding whether to start a tightening campaign geared at taming red-hot inflation.
With central banks in the spotlight, Asian stock markets steadied after three sessions of losses. U.S. and European stock futures were higher.
Geopolitical tensions were likely to remain in focus after U.S. President Joe Biden said he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine, as Western leaders stepped up military preparations and made plans to shield Europe from a potential energy supply shock.
Key developments that should provide more direction to markets on Wednesday:
– Microsoft offers strong forecast, lifting shares
Fed meeting read more
– Debt-laden China Evergrande to hold investor call on Wednesday – sources read more
– Fed policy decision due at 1900 GMT
– Bank of Canada meeting
– US goods trade balance/inventories/new house sales
– US 2 year FRN sale
– UK linker sale
– European earnings: Essity, Sage Group, Barry Callebaut
EUROPE ON THE UP ON FED DAY (0744 GMT)
European stock futures are rising slightly before the cash market open as investors cautiously await a Federal Reserve policy decision that could hit to faster tightening measures.
Contracts on the Euro STOXX 50, DAX and FTSE indices were up 0.7%-0.9%, while Nasdaq futures rose 0.5% after another volatile day on Tuesday that saw renewed pressure on tech stocks. Microsoft shares rose in Frankfurt after a strong forecast.
Over in Asia, share markets steadied after three sessions of losses. read more
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