"Don't trust this equity rally"

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>LIVE MARKETS-"Don't trust this equity rally"</title></head><body>

STOXX Europe 600 up 0.1%

Chip stocks rally on Nvidia boost

German economy enters recession in Q1

Nasdaq futures up 1.8%

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That is the advice of Societe Generale global strategist Albert Edwards, who, in a recent note, said it is "solely driven by (unfounded) analyst optimism."

He highlights a divergence between analyst optimism and the official economic leading indicator - which he says has "NEVER been so weak without signalling an imminent recession."

Maybe analysts already discounted a recession?

"I think not," he says, pointing out the mere blip in analysts' 12m forward EPS forecasts versus a 9% crash in their long-term estimates over the next three to five years for EPS.

It is a worrying disconnect when considering Germany's DAX .GDAXI is near all-time highs, while Japan's Nikkei .N225 is passing the 30,000 level for the first time for 33 years.

Also under his microscope is the tricky topic of long-term ‘neutral’ interest rates - a rate that neither slows nor quickens economic growth or inflation. Pundits dub this concept "R*"

"Academic and (even) Fed economists have at last realised that the R* for the economy may have diverged significantly from the R* for the financial markets," Edwards says.

Bringing interest rates to their correct economic level – R* - is now impossible to do without imploding the financial system and thus collapsing the economy, he adds.

What's to blame?

"...years of excessively easy monetary policy in a mistaken attempt to prop up economies," is his answer to that.

(Lucy Raitano)



Global fund managers have cut their weighting to mainland China back to late 2022 levels when the country was still pursuing its zero covid policy, while increasing exposure to Japan to five year highs, HSBC said in a Thursday note.

A widening U.S.-China trade and technology dispute have added to already weak sentiment around U.S debt ceiling negotiations, dragging on Chinese stocks in recent months.

Onshore Chinese blue chips .CSI300 are down about 4.5% in May so far, and flat on the year, having given back all their gains associated with China's reopening at the start of 2022. .SS

Global funds are significantly underweight mainland China and their exposure to mainland Chinese stocks is at its lowest since October 2022, HSBC Global Research said, referencing their analysis of EPFR and FTSE Russell data.

Asia-focused funds are also now underweight China, they said, while, in contrast, Japan portfolio weights for global investors are now at five-year highs.

Japan's Nikkei share average .N225 reached its highest since August 1990 earlier this week, as foreign investors have been drawn by the Tokyo Stock Exchange's (TSE) push for better corporate governance and Warren Buffett's increased investment in some Japanese trading companies. .T

(Alun John)



Bank of America equity analysts have waded in with their top picks for beneficiaries of the anticipated booming adoption of AI-related semiconductor tech.

One top pick is ASM International ASMI.AS, which they see along with ASML Holding ASML.AS as a beneficiary of higher orders - and therefore factory utilisation.

Another top pick is Dutch BE Semiconductor Industries BESI.AS, shares of which are up 8% today.

It is BE Semiconductor Industries' exposure to both Nvidia through its "Chip-on-Wafer-on-Substrate" packaging (CoWoS packaging) and its exposure to the American company Advanced Micro Devices AMD.O through its "hybrid bonding" that stand out. Hybrid bonding is a "chip-to-chip interconnect technology" according to Besi's website.

Others they think will benefit include:

- Italy's Technoprobe TPRO.MI, which has a 20-25% revenue exposure to datacenter/AI market

- Switzerland's Comet COTNE.S, whose sub-systems are used by major semicap vendors

- Germany's Siltronic WAFGn.DE, a wafer manufacturer used by both logic and memory chipmakers

- Germany's Infineon IFXGn.DE and the Netherlands' STMicroelectronics STMPA.PA, which provide power management for servers

(Lucy Raitano)



All eyes are on anything related to semiconductors this morning, which are enjoying a glittering AI-related boost and tempering any steeper falls as the STOXX 600 .STOXX steadies.

But the market is still digesting Wednesday's UK inflation surprise, and for strategists at Morgan Stanley, the big story was the "extreme resilience" in UK core goods inflation.

The print showed food prices still rising sharply despite a drop back to single digits for the headline inflation rate in April, leaving Bank of England Governor Andrew Bailey concerned.

"We adjust our forecasts to reflect more resilient near term traded goods inflation, with a sharper collapse in 2024," write the MS strategists.

Crunching the numbers, it is the strength in traded goods inflation that makes the UK an outlier when compared to the US and the euro area, they say.

"This month, used cars and recreational items were the main culprits for the surprise tick up in traded goods inflation."

This resilience comes amid a sharp correction in global manufacturing and shipping costs, with an ongoing inflection in US core goods inflation, and more recently in the euro area as well.

Some of it has to do with retail sector margin expansion, while some can also be attributed to a result of "faster and sharper FX pass-through than in previous cycles"

"But gravity can only be defied for so long," the Morgan Stanley strategists say.

For that reason, though they up their near-term traded goods inflation forecast, they also foresee a bigger drop in the sector over the final quarter of this year and throughout next.

Still, they remain convinced that the BoE will hike in June for the final time.

(Lucy Raitano)



The strong Nvidia NVDA.O beat is doing its thing, helping stem a two day selloff across European equity markets, with a rally in chip stocks helping benchmarks steady in early trades, even as data showed the German economy entered into a recession.

The STOXX Europe 600 .STOXX was last just down 0.1% and the EuroSTOXX50 .STOXX50E added 0.1% following two days of heavy losses. A 2% bounce in tech .SX8P gave support.

Other sectors were mostly lower though led by retailers .SXRP and real estate .SX86P.

Amsterdam's AEX .AEX index, where top chip stocks listed, stood out with a 0.4% gain.

Here's your snapshot with top country indices.

(Danilo Masoni)



A two-day European selloff looked set to pause on Thursday as stellar numbers from semiconductor heavyweight Nvidia NVDA.O brought relief to markets concerned over the lack of progress in U.S. debt ceiling talks and new signs of sticky inflation in Europe.

After a jump in UK core inflation contributed to push the region wide STOXX Europe 600 benchmark into its worst day in two months, index futures pointed to slight gains in the day ahead.

Derivative contracts on the EuroSTOXX50 and FTSE were up 0.1-0.2%.

Nasdaq futures rallied 1.4% while Frankfurt-listed Nvidia shares advanced 23%. The world's most valuable listed semiconductor company forecast Q2 revenue over 50% above Wall Street estimates. It said it is boosting supply of artificial-intelligence chips to meet surging demand.

The Nvidia beat was expected to boost European chip stocks such as ASM ASMI.AS, ASML ASML.AS, Be Semi BESI.AS, Infineon IFXGn.DE and Siltronic WAFGn.DE. Traders also pointed to positive reaction in insurer Generali GASI.MI and ingredients maker Tate & Lyle TATE.L following results.

Placements in audio solutions firm GN Store GN.CO and health and nutrition group DSM-Firmenich DSFIR.AS were set to hit their shares at the open.

(Danilo Masoni)



The U.S. debt ceiling saga continues to hang over global markets, with the White House and Republicans both citing progress in the latest round of talks but no breakthrough yet.

Ratings agency Fitch opted not to wait, placing the country's "AAA" rating on watch for a possible downgrade - the first major agency to do so. That could raise the stakes in protracted negotiations as the June 1 "X-date" looms - or policymakers in Washington might simply choose to ignore it.

The ratings watch has given a further boost to U.S Treasury yields and the greenback, with the dollar index =USD notching new trend highs while Japan's yen hit its lowest since Nov. 30 and the euro and sterling are sitting on major chart support.

Two-year Treasury yields have also extended to highs not seen since mid-March, while the yield on Treasury bills maturing in early June climbed further above 7%.

Stock markets across Asia are in the red, apart from Japan's effervescent Nikkei, although S&P E-mini and Nasdaq futures have bounced after a strong revenue forecast from Nvidia Corp NVDA.O.

Europe's data calendar is fairly light, with German final Q2 GDP the main release. However, there are plenty of central bank speakers, with comments from Bundesbank head Joachim Nagel and ECB chief economist Philip Lane likely to draw the most interest.

Bank of England monetary policy committee member Jonathan Haskell's speech in Washington will also be watched after UK price data again surpassed expectations on Wednesday. That left Governor Andrew Bailey fretting about "sticky and stubborn" inflation while markets priced in further policy tightening.

Expectations of a Federal Reserve rate hike in June also continued to creep up, even after the May 2-3 meeting minutes showed little consensus on the need for further increases.

Key developments that could influence markets on Thursday:

German final Q1 GDP and June GfK consumer sentiment

Bundesbank chief Nagel, ECB's Lane and de Guindos, and BoE's Haskell speak

U.S. weekly jobless claims and second estimate of Q1 GDP

Earnings: Dollar Tree, Ralph Lauren and Gap

(Sonali Desai)


A tale of two debt-limit standoffs, 2011 and 2023 https://tmsnrt.rs/3Mzqmq6

eu open https://tmsnrt.rs/3qbtcKl


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