- European stocks up 0.5% in choppy trade
- Investors nervous over Ukraine fears and Fed jitters
- US futures slide after late rebound on Wall Street
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TIME TO SAY GOODBYE TO EXCEPTIONALISM? (13:11 GMT)
One of the key features of stock markets so far in 2022 is that European stock markets are outperforming Wall Street and could very well continue to do so, according to many strategists.
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Among the factors that may explain Europe’s advantage this year is the fact that the old continent’s blue chip indices are overweight with cyclical and value stocks that typically thrive during cycles of monetary tightening.
But according to a research note from Gustavo Medeiros, head of research at Ashmore, we may actually be witnessing the end of a deep structural trend that has lasted more than a decade and has seen US equities outperform global markets.
“In our view, the exceptionalism of the US stock market was primarily a function of five years of pro-cyclical fiscal expansion (Donald Trump’s corporate tax cuts in 2017 and Joe Biden’s overly generous stimulus in 2021) as well as than more than 10 years of quantitative easing, which has mainly benefited US equities,” the analyst wrote.
“Pro-cyclical fiscal stimulus and quantitative easing will end in 2022 as the US government seeks to shore up its fiscal accounts and US politicians urge the Fed to focus on inflation,” he also said. , adding that it will “enable the reversal of American policy”. stock outperformance.
And for Medeiros, this trend may very well have legs.
“The huge gap between US equity valuations and those of the rest of the world should make this a long and lasting trend, from 2022 onwards, in our view.”
BUY A DEAD CAT, BET ON THE “FED CLUB” (1103 GMT)
There is a lot of skepticism about the durability of yesterday’s rebound.
European stocks may be up right now, but they are nowhere near offsetting the rout of the last session and Wall Street futures are currently trading in the red.
“We could be looking at a dead cat bounce rather than the start of a market rally,” warned Russ Mould, chief investment officer of AJ Bell.
“Investors’ hands are already shaking after the bloodbath in equity markets so far in 2022, so any aggressive action by the Fed could cause global equities to sell off again,” he added in reference. at the Fed meeting this week.
On that note, Rabobank’s Michael Every suggests that looking at the selloff, many market participants decided to bet that some sort of “Fed put” would likely end the onslaught.
“The optimism implies that just before the hawkish Fed meets – with inflation high enough to turn political – it is already repricing because stocks and crypto are down year-to-date” , he wrote, comparing the so-called “Fed put” to the famous 1999 film “Fight Club” with Edward Norton and Brad Pitt.
“It’s the supposed rule of the Fed Club: you don’t talk about it; you don’t talk about it; but as soon as the markets shout ‘stop!’, or go limp, or tap, the Fed is finished” .
Another big unknown known for the direction of travel in the coming days is earnings season. Susannah Streeter of Hargreaves Lansdown pointed out that there is a lot at stake with very high expectations for Microsoft’s results later today.
“With such high bars, failing to meet expectations could trigger a new wave of selling,” she said, while for many experts any further escalation in Ukraine could again shake European markets.
Finally, Mark Haefele, CIO at UBS GWM, bluntly explained that the positive global macro picture made a decent argument for investors to simply buy the dip.
“We also view it as a reflection of a fundamental environment that still looks positive over the medium term.”
MONEY MARKETS CAVE TO PRESSURE (0945 GMT)
Interest rate betting markets have been broadly unresponsive to the stock market selloff in recent days, but signs around the edges show THAT could be changing.
At yesterday’s low, US stocks (.SPX) were down 4% on the day and money markets blinked as March futures failed to predict a 25 basis point rate hike by the US Federal Reserve for the first time this year.
Although that changed quickly as US equities staged an impressive rally at the close, medium-term expectations took a hit.
December fed funds futures rallied overnight, reducing the cumulative amount of rate hikes for all of 2022 to around 92 basis points from 98 basis points on Friday.
It remains to be seen whether Federal Reserve policymakers will take notice of the market selloff following a policy meeting this week.
At yesterday’s low, US stocks (.SPX) were down more than 12% for the month and were then on course for their biggest monthly decline since the pandemic hit markets in March 2020.
The high-flying Nasdaq saw $3 trillion wiped out of its overall market value this month?
Any signs of an easing bias and rate expectations could melt away further.
STOXX RECOVERS SOME GROUND (09:15 GMT)
European equities started the session on the positive side, but caution over Fed and Ukraine risk was palpable, leading to jerky moves in the first hour of trading.
The STOXX was last up 0.5% after earlier moving between flat and a more than 1% gain, recovering some of Monday’s steep drop.
Well-received profits from Logitech, Ericsson and Swatch helped soothe nerves, although Credit Suisse slipped to a new 20-month low after the Swiss bank warned it was at risk of reporting a net loss in the fourth quarter due to new legal fees.
Here is your opening snapshot:
BUY THE DIP? OR PRAY FOR FED PUT? (08:14 GMT)
Bears prowl the markets as another type threatens the eastern flank of Europe.
It is probably futile to expect the Russian bear to pull back the way Wall Street bears did on Monday night when sentiment soared, allowing the S&P 500, which was 4% in the red at some point, to close higher.
Clearly, bearish buyers haven’t completely fled the stock markets. Or was it a function of all those short positions on the Nasdaq, which suddenly ended up in the money?
The momentum failed to materialize, with Asia deep in the red and Wall Street futures down nearly 2%. Options market readings are also not reassuring; Trading in put options, used to place bearish bets, outnumbered bullish call options by 1.1 to 1 on Monday, reportedly the most bearish ratio since March 2020.
Outside the markets, the global economic situation does not look too bad. Monday’s PMI advance readings showed a slowdown in business activity in December due to Omicron, but signaled a spike in supply chain delays. South Korea’s GDP grew at the fastest pace in 11 years and among US companies that reported fourth-quarter profits, 77% beat forecasts.
Amid this market rotation, the Fed is starting a two-day meeting that may well be the last before an interest rate hike in March. Many hope that he will pay attention to the tightening of financial conditions that these massive stock sales inevitably entail. JPMorgan cites the strong earnings season to argue that the downtrend is overdone. And after all, they add “the worst case scenario could see the return of the Fed put”.
Key developments that should further guide markets on Tuesday:
-Singapore tightened monetary policy settings in its first off-cycle move in seven years
-South Korea’s economy grew at fastest pace in 11 years in 2021
– Australia’s core inflation hit its fastest annual pace since 2014 in the December quarter
-Credit Suisse warns of Q4 net loss
-IFO survey in Germany
– Emerging markets: Central Bank of Hungary
-January U.S. Consumer Confidence
– Auction of US 5-year banknotes (55 billion dollars)
– US profits: General Electric, Johnson & Johnson, 3M, Xerox, Invesco, American Express, Verizon, Microsoft, Capital One
-European results: SEB, Rémy Cointreau, Logitech, Ericsson
EUROPE VIEWS TEMPORARY REBOUND IN VOLATILE DAY (0730 GMT)
European stock futures rise on the back of a surprise late rebound on Wall Street on Monday, but volatility is expected to persist as rates and geopolitical risks reduce visibility on the near-term direction of markets.
So while contracts on the Euro STOXX 50, DAX and FTSE indexes rose to trade around 0.6% after the region had its worst day since June 2020, futures on the Nasdaq fell more than 2% and those on the S&P 500 slipped 1.6. %.
Investors remain nervous about the possibility of a military conflict in Ukraine and the approach of a key Fed meeting that could provide guidance on the timing and pace of rate hikes. Read more
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