Get ready for a German inflation surprise
STOXX 600 set for weekly gains
H&M shares slump on Q4 profit miss
Food & beverage shares lag
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GET READY FOR A GERMAN INFLATION SURPRISE (1300 GMT)
Next week is a busy one for risk events. Central bank decisions from the Fed, ECB and BoE. Earnings from Apple, Alphabet and Amazon. Not forgetting the U.S. jobs report and GDP data from the UK and euro area.
On top of that, January consumer price inflation data from Germany is scheduled to be released on Tuesday, which Capital Economics expects to have moved back into double figures.
"The reversal of temporary subsidies and changes to weightings will probably push headline German harmonised index of consumer prices (HICP) inflation back up in January," Capital Economics senior European economist Franziska Palmas says in a note.
Palmas expects the headline German HICP to rebound to around 10.3% after falling from 11.3% in November to 9.6% in December.
Economists polled by Reuters expect HICP to have risen to 10% in January on an annual basis.
Still, Palmas is expecting inflation to fall sharply this year on the back of a moderation in energy and food prices, but that might make little difference to the ECB, which focuses on the core rate when setting policy.
"While we think the core rate will come down in both Germany and the euro-zone as a whole this year, we expect it to do so only slowly, keeping the ECB in hawkish mode," Palmas says.
The ECB is seen raising interest rates by 50 basis points on Thursday, marking its second straight half-point increase.
(Samuel Indyk)
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WHY TO EXPECT A HAWKISH ECB MESSAGE (1214 GMT)
Many analysts say a tug-of-war between markets and the ECB is underway.
We don't know whether this is true. However, it's a fact that central bank officials, or at least some of them, have pushed back against market pricing of the monetary tightening path as they saw it as too dovish.
Now markets focus has shifted to next week's ECB meeting.
According to Nomura analysts, euro area inflation numbers, due next week, for January "risk coming in softer than markets and consensus expect."
"If this happens, we expect markets to challenge the ECB and bring down pricing of rate hikes beyond the February meeting as well as further cement pricing of rate cuts from September 2023 onwards," they argue.
"We expect a markedly hawkish ECB message in order to recalibrate market expectations on near-term rate hikes and put an end to market pricing of rate cuts during 2023," they add.
Financial markets bet on the ECB's depo rate to peak at 3.2% in August 2023 and fall to 2.9% by May 2024, according to ECB short-term interest rate forwards EUESTECBF=ICAP.
(Stefano Rebaudo)
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FTSE 350 BUY RECOMMENDATIONS SURGE (1122 GMT)
Buy recommendations for UK listed companies have risen to the highest level since at least 2015, as the FTSE 350 index kicked off the year up 4.5% in January.
Two thirds of analysts' recommendations for the FTSE 350 companies are buys, just 8% are sells, according to data compiled by AJ Bell.
FTSE 100 | FTSE 350 | ||||||
Buys | Holds | Sells | Buys | Holds | Sells | ||
2015 | 47% | 39% | 14% | 49% | 39% | 12% | |
2016 | 47% | 40% | 13% | 48% | 40% | 12% | |
2017 | 45% | 40% | 15% | 47% | 39% | 15% | |
2018 | 49% | 37% | 14% | 48% | 38% | 13% | |
2019 | 52% | 36% | 12% | 51% | 38% | 11% | |
2020 | 46% | 38% | 16% | 47% | 39% | 14% | |
2021 | 54% | 35% | 14% | 54% | 35% | 12% | |
2022 | 57% | 34% | 9% | 62% | 31% | 8% | |
2023 | 57% | 34% | 9% | 63% | 29% | 8% | |
Average 2015-2023 | 51% | 37% | 13% | 53% | 37% | 11% | |
Source: Refinitiv data, analysts’ consensus
However, AJ Bell investment director Russ Mould notes that analysts' top picks have not beaten the blue chip index once since 2015, other than in 2019.
“This is not to poke fun. It just shows how hard picking individual stocks can be, even if it is your full-time job. Markets will tend to do what causes the greatest degree of surprise and analysts do not intentionally set to out to sit on the fence."
(Joice Alves)
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Q4 EARNINGS: NOT GREAT BUT NOT A SHOCKER (1030 GMT)
Fourth quarter earnings season is in its early stages but results have been broadly in-line with expectations so far, according to Barclays equity strategists led by Emmanuel Cau.
"Early Q4 results confirm what everyone seemed to have expected, i.e. slowing demand, margins pressure and an uncertain outlook for '23, but are not a shocker either," Barclays says in a note.
Looking forward, Cau's team says the Fed and ECB meetings next week are likely to hold the fate of the recent rally, a rally that has seen the STOXX 600 jump near 7% this month, its biggest January gain since 2015.
"The rebound in equities of the past 3 months or so has been largely built on market expectations of a dovish pivot in monetary policy," Barclays says.
"Falling yields have acted as a tailwind for P/Es, but a lot of (too much?) dovishness seems priced in now, in our view," they say adding that the question next week will be whether the central banks push back on current market pricing.
Money markets are pricing in rate cuts from the Fed this year and from the ECB early in 2024.
"A dovish (but unlikely) tilt would likely be cheered by markets, while a hawkish surprise may lead to short term downside," Barclays writes, adding that the ECB will likely sound more hawkish, "which could add more upward pressure on euro-dollar."
(Samuel Indyk)
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STOXX EDGES UP: EARNINGS, CENTRAL BANKS IN FOCUS (0845 GMT)
European shares are edging up as investors digest a mixed batch of earnings reports, ahead of a slew of central bank meetings next week.
The pan-European STOXX 600 .STOXX is up 0.1%, with losses in retailers .SXRP offseting gains in the energy .SXEP sector.
Shares in the world's second-biggest fashion retailer H&M HMb.ST are down 6% after the company reported a much larger-than-expected dive in September-November operating profit, slammed by soaring costs and weakening consumer confidence.
Shares of LVMH LVMH.PA - Europe's biggest company by market value - opened lower but recovered, rising 0.8%. Some analysts expressed disappointment over the company's margins, which initially took some of the shine off its strong fourth-quarter sales figures.
Investors are refraining from positioning too aggressively ahead of a week packed with central bank meetings, major economic data and a slew of megacap earnings. Markets expect policymakers at the Bank of England and European Central Bank (ECB) to deliver 50-bps rate hikes and for the Federal Reserve to raise rates by just 25 bps.
(Joice Alves)
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STUMBLING AWAY (0800 GMT)
Chip giant Intel's INTC.O grim earnings report along with mixed U.S data that showed a resilient economy but a labour market that remains tight will likely dominate investors' minds and dictate Friday's trading.
The U.S. chip bellwether expects to lose money in the current quarter as two pillars of its success in the past few years -- the PC and data centre businesses -- face slowing demand.
"We stumbled ... we lost momentum," said Chief Executive Pat Gelsinger.
In contrast, European chipmaker STMicroelectronics STM.PA cited strong demand from automotive and industrial customers on Thursday as it beat earnings and sales targets.
Meanwhile, better-than-estimated U.S. GDP data has provided a fillip to investors for some risk-on rally, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS at a nine-month high and set for its best ever January performance.
The Japanese yen JPY=EBS rose against the dollar after Tokyo's consumer inflation, a leading indicator of nationwide trends, touched a near 42-year high and reinforced market expectations that the Bank of Japan will soon have to step away from its ultra-easy policy.
Before next week's central bank meetings (that's Fed, ECB and BOE on the deck) take all of investors' attention, the focus on Friday will be on the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) data. The core PCE price index is expected to rise 0.3% in December, according to Reuters poll of economists.
Key developments that could influence markets on Friday:
Economic events: Sweden unemployment rate for December, Spain Q4 GDP data and core U.S. PCE data
(Ankur Banerjee)
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STOXX SEEN HIGHER AFTER U.S. STRONG Q4 (0730 GMT)
Futures are pointing to a positive start of the day for European bourses after data highlighting a resilient U.S. economy boosted investor sentiment ahead of next week's slate of central bank policy meetings and corporate earnings.
In Europe, the focus will also be on a mixed batch of earnings results.
European stock futures Eurostoxx 50 futures STXEc1, German DAX futures FDXc1 and FTSE futures FFIc1 are up around 0.1%.
The U.S. economy grew faster than expected in the fourth quarter. But capping the enthusiasm, data also showed that a measure of domestic demand rose at its slowest pace in 2-1/2 years, reflecting the impact of higher borrowing costs. While a separate report showed that labour market remains tight and could lead the Fed to keep interest rates higher for longer.
In terms of corporate news, luxury goods group LVMH's LVMH.PA sales rose 9% in the fourth quarter as shoppers in Europe and the U.S. splurged over the crucial holiday season, helping partly to offset COVID disruptions in China.
H&M HMb.ST, the world's second-biggest fashion retailer, reported a much larger dive than expected in September-November operating profit, slammed by soaring costs and weakening consumer confidence.
(Joice Alves)
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Tokyo core CPI rises, highest in almost 42 yearshttps://tmsnrt.rs/3kO41Lb
Intel quarterly revenue falls most in at least two decadeshttps://tmsnrt.rs/3Difby2
EU shares Janhttps://tmsnrt.rs/3HfNhE7
ESTRfwdhttps://tmsnrt.rs/3wAzfbc
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