U.S debt ceiling resolution = liquidity drainage?
STOXX Europe 600 down 0.05%
Caution over U.S. debt limit talks
Ruling conservatives win in Greece
U.S. stock futures down 0.1%
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U.S. DEBT CEILING RESOLUTION = LIQUIDITY DRAINAGE?(1146 GMT)
Deteriorating liquidity could be a paradoxical outcome if the U.S. debt ceiling is resolved - and is a factor that could weigh on U.S stocks, say Ninety One strategist Sahil Mahtani and analyst Daniel Morgan in a note.
They explore four outcomes for what they call the ongoing U.S. "debt ceiling skirmish".
The first, and they say most likely, is a negotiated deal probably involving some spending cuts and regulatory changes.
Second is a debt ceiling increase without Congressional agreement. Third is a no deal scenario, with interest payments prioritised, and last is a no deal with full default - though this carries a "vanishingly small probability".
All in all, a resolution is their most likely scenario, but what does that mean for markets?
According to Mahtani and Morgan it would mean a repricing of the U.S. macro outlook as a tail-risk to growth is avoided, and it would see the country's rates curve move modestly up.
"It will also result in the reversion of specific market anomalies, e.g. the T-bill curve will normalise."
But in spite of some immediate relief in markets, a resolution could weigh on U.S. stocks going forward: "The liquidity outlook will paradoxically deteriorate" as the U.S. treasury begins to rebuild its cash balance and liquidity is drained from the U.S. economy.
(Lucy Raitano)
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AI OPTIMISM NOT ENOUGH TO DODGE EARNINGS RECESSION - MS (1103 GMT)
Investor optimism around technological developments from AI are warranted, but they will not be enough to prevent the deep earnings recession that Morgan Stanley is forecasting for 2023.
The S&P 500 .SPX rose 1.6% last week and is now around levels seen in August but Michael Wilson, strategist at the U.S. bank, believes that the recent price action "will prove to be a head fake rally like last summer's".
His reasons for thinking this are plentiful.
Firstly, and simply, valuations are not attractive. The second reason has to do with overly optimistic consensus earnings estimates, which he says are off by as much as 20% for this year. Third on his list is the fact that equities are pricing in Fed cuts before year-end without any material implications for growth.
On the contrary, Morgan Stanley economists see this happening only if we definitively enter a recession, or if stresses in the banking system increase and/or credit markets deteriorate significantly, he says.
And finally on the debt ceiling, Wilson is not too upbeat either: "... while a debt ceiling resolution removes a near-term market risk, a material dislocation was never priced in and the bigger risk for markets now is that raising the debt ceiling could decrease market liquidity based on the sizeable Treasury issuance we expect over the six months after it passes".
(Lucy Raitano)
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EUROPE: MIND THE SERVICES-MANUFACTURING GAP (1018 GMT)
The diverging economic fortunes for Europe's slowing manufacturing and the growing services sectors has led to the widest gap ever in the region's PMIs, Goldman Sachs has found.
But what does this mean for equities?
According to the U.S. bank this should put goods-related stocks under pressure, but recent share price trends seem to suggest that manufacturing data might be somewhat too gloomy.
"Goods-related sectors tend to underperform services sectors when the PMI gap widens, but recently our Goods basket has outperformed Services - ignoring the gap in sentiment data, potentially implying that sentiment data exaggerates the real economic impact," argues Goldman in a note.
(Danilo Masoni)
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DEBT CEILING RISKS WORSE NOW THAN IN 2011 - JPM (0903 GMT)
J.P.Morgan believes there's a non-zero probability of the U.S. government defaulting on its debt and risks of that happening seem be growing as time for a deal is running out.
And for risk assets like stocks this means that any potential selloff could be sharper now than in 2011 when the last debt ceiling talks in the U.S. were held.
JPM analysts led by Dubravko Lakos-Bujas say monetary conditions are tighter now than in 2011, while money supply is collapsing and inflation is at record high.
"The two major investment implications related to the debt ceiling and Federal spending is the potential for a violent risk-off move in equities as we get closer to the projected X-dateof early June without a broadly supported resolution and the potential for Federal spending cuts across key Biden legislative priorities," JPM writes.
Lakos-Bujas in fact expects a temporary and comprehensive debt dealto negatively impact Federal spending and set up fiery budget negotiations later this year.
(Aniruddha Ghosh)
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STOXX INCHES UP, ATHENS AT 2014 HIGHS (0758 GMT)
European shares kicked off the session cautiously higher as uncertainty over U.S. debt ceiling talks kept traders on edge, but in Greece the mood was much more buoyant after elections gave the ruling New Democracy party a commanding lead.
So, while the region-wide STOXX Europe 600 .STOXX index added just 0.1% in early trading, staying close to recent highs, the Athens equity benchmark .ATG index advanced 6%, climbing to its highest level since July 2014.
Banks .SX7P and basic resources .SXPP were slightly weaker while a China ban on top U.S. memory chipmaker Micron had no evident repercussions on European chip stocks. Telecoms .SX7P led sectoral gainers, up 0.7%. A profit warning sent Dechra Pharma down almost 7% to the bottom of the STOXX.
Here's your opening snapshot:
(Danilo Masoni)
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EUROPEAN FUTURES FLAT (0636 GMT)
European equity index futures signalled a flat start to the week on Monday as twist and turns in U.S. debt ceiling negotiations kept investors on the sidelines.
EuroSTOXX50 and FTSE contracts were last trading down 0.1% and unchanged respectively, while U.S. futures also hovered around parity following losses on Friday.
U.S. President Joe Biden and House Republican Speaker Kevin McCarthy will meet to discuss the debt ceiling late in the day.
Corporate newsflow in Europe was rather thin so far.
Chip stocks could come in focus after a move by China to bar U.S. firm Micron from selling memory chips to key domestic industries. Eyes also on Adidas after shares of U.S. peer Foot Locker sank on Friday following a profit warning.
Ryanair posted a near record annual profit and said it was cautiously optimistic that profits would rise modestly in the next 12 months, with summer demand notably robust.
In M&A, Henkel CEO said in a newspaper interview that German consumer goods group was on the lookout for acquisitions, spurred by its strong financial position and low debt.
A large number of stocks in Italy go ex dividend on Monday. That is expected to knock more than 1 percentage point off the FTSE MIB benchmark index.
(Danilo Masoni)
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NOT SO FAST, DEBT CEILING BULLS!(0552 GMT)
You didn't think it would be that easy, did you?
Investors are on edge after equities and the dollar got knocked back Friday, when Republican negotiators unexpectedly walked out of debt ceiling talks.
Discussions now seem to be back on track, with President Joe Biden due to meet House Republican Speaker Kevin McCarthy later today. But the brinkmanship highlights that as long as there is no deal, the potential for a disastrous U.S. default is impossible to ignore.
Time is running out, with less than two weeks before the ostensible "X-date" for the Treasury to run out of money in early June.
The dollar was heavy in Asia, and equities around most of the region declined, portending weakness when Europe wakes up as well.
A notable exception was China, with stocks gaining on the mainland and in Hong Kong, where the Hang Seng bounced from a two-month trough.
One reason: the mood music out of the weekend G-7 summit was much gentler on Chinese ears than some feared, expressing a desire to "de-risk, not decouple" on economic ties to China.
At the same time, though, China stepped up its dispute with the U.S. over chip technology, failing Micron Technologies products in a security review.
Another potential boost comes from the PBOC's assessment that the fundamentals of China's economic stability and long-term improvement have not changed.
Europe's macro calendar is fairly light today, although ECB officials may want to keep an eye on euro-area consumer confidence figures for this month, following its aggressive monetary tightening campaign. Central bank chief Christine Lagarde sent a clear hawkish signal on Friday, telling policy makers to "buckle up".
Luis de Guindos and Philip Lane are among Lagarde's ECB colleagues on speaking duty today.
In the U.S., Monday's Fed speakers include James Bullard, Raphael Bostic and Tom Barkin - though they risk being drowned out by Chair Jay Powell's comments from Friday that his preference is to pause next month, instead of hike.
Key developments that could influence markets on Monday:
Eurozone consumer confidence report
ECB's Luis de Guindos and Philip Lane speaking
Fed's Bullard, Bostic and Barkin speaking
(Kevin Buckland)
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How US deficit reduction plans compare https://tmsnrt.rs/3Iog4rq
Eu open https://tmsnrt.rs/41YGKpu
PMI gap euro zone https://tmsnrt.rs/3MNcREj
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