A tale of two FTSEs
STOXX 600 down 1.5%
Miners, oil lead fallers
Bonds rise after weak U.S. data
Lagarde: ECB will stay the course of rate hikes
U.S. stock futures down around 1%
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A TALE OF TWO FTSEs (1250 GMT)
As the UK blue-chip FTSE 100 .FTSE and mid-cap FTSE 250 .FTMC climb this year despite macro uncertainties, its worth noting the bifurcated journey of the indexes.
The bigger of the two FTSEs, in terms of market capitalisation, packed with heavy-weight miners and energy firms, has been waiting for an additional 2% thrust to notch an all-time high for the first time since May 2018.
In 2022, the commodity-heavy FTSE 100 was flying high on strong metals and crude oil prices, ending the year outperforming its benchmark peers in Europe .STOXX and in the U.S. .SPX.
During the same year, the domestically-focused FTSE 250 saw its biggest decline since the 2008 financial markets as it was exposed to the volatile political and economic shifts in the UK.
The UK saw the political baton shift between three prime ministers last year, sending markets into a frenzy, while the country struggled to battle four-decade high inflation numbers.
With inflation still in double-digit territory, and a hawkish Bank of England, the FTSE 250 remains 18% from its all-time high.
"Conditions are not good for UK companies and the concern is that the stagflationary picture will grow and become entrenched, and I think there's significant reasons for concern at the moment because of that," said Giles Coghlan, Chief Market Analyst at HYCM.
In the meantime, the mid-caps will have to suffice with a golden cross, a technical indicator where the 50-day moving average breaks above the 200-day moving average, heralding a bullish momentum in markets.
(Johann M Cherian)
THE STRANGE CASE OF UK LABOUR MARKET RESILIENCE (1200 GMT)
Consumer confidence in the British economy this year is still close to record lows. But employment expectations are still above where they were during the Global Financial Crisis in 2008 and the first COVID lockdown in 2020.
"One of the more interesting themes playing out in global macro right now is the resilience of labour markets in the face of slowing growth and real income shocks", write Deutsche Bank's Shreyas Gopal and Sanjay Raja.
No other country epitomises this dynamic more than the UK, they add, and that could be good news for companies, as spending could hold up better than many feared.
People's confidence in the job market was bolstered by the strength seen after the end of COVID job-support schemes.
"Perhaps having come through a period of such high uncertainty with jobs intact, as well as vacancies still remaining elevated, has made job security robust despite increasing wider economic fears," the analysts say.
HOW WOULD INFLATION LOOK IF THE ECB HAD ACTED SOONER? (1141 GMT)
Like other central banks, the European Central Bank has often faced criticism for acting too late and too harshly in raising interest rates to fight rising inflation, which risks causing damage to markets and the economy.
But what would have happened to euro zone inflation if policymakers in Frankfurt had taken a "preventive approach", wonders Patrick Artus at Natixis in Paris.
If that had been the case, Artus estimates price pressures would have been more manageble.
"Inflation would have normalised as early as 2024, whereas we will now have to wait until 2025 given the ECB’s current weak response," he argues.
"Using the same preventive policy as in the past" would have led to headline inflation of 7.1% in 2022, 4.9% in 2023 and 2.0% in 2024, and to core inflation of 3.9% in 2022, 2.7% in 2023 and 1.3% in 2024, according to Artus.
That compares to current ECB forecasts of headline inflation at 8.4% in 2022, 6.3% in 2023 and 3.4% in 2024 with core inflation at 3.9% in 2022, 4.2% in 2023 and 2.8% in 2024.
Meanwhile, in a speech this morning, Lagarde sounded hawkish once again. "We shall stay the course until such a time when we have moved into restrictive territory for long enough so that we can return inflation to 2% in a timely manner," she said.
THE CASE TO STAY EXPOSED TO LOW LEVERAGE STOCKS (1022 GMT)
One of the factors Bernstein believes will continue to outpeform this year in Europe is low leverage.
"With corporate funding costs at such elevated levels, companies with low leverage and which currently hold highly rated debt should be more attractive," say Bernstein strategists Mark Diver and Sarah McCarthy.
"Our macro analysis shows that European low leverage can outperform when leading indicators are predicting recessions and also when interest rates are rising as is the case presently."
What's more is that valuations are "attractive" and even though the space is marginally more crowded than historical averages, Bernstein sees "some scope" to add exposure without incurring crowding risks.
Want some picks?
Media company Publicis PUBP.PA, luxury goods groups LVMH LVMH.PA and L'Oreal OREP.PA, energy group Equinor EQNR.OL, plane maker Airbus AIR.PA and chemicals firm DSM DSMN.AS are the overweight-rated stocks that Bernstein has included in its investment-grade European low leverage screen.
Bernstein also likes high yield stocks.
RECESSION CONCERNS KNOCK STOXX (0913 GMT)
With a fair chunk of China's reopening seemingly priced in, the return of the recession narrative sparked by poor U.S. data on Wednesday provided investors just with what they needed to push markets lower after a buoyant start of the year.
The STOXX 600 .STOXX regional benchmark was 0.9% lower in early trading after scoring the day before its longest winning streak since November 2022, while the FTSE 100 .FTSE in the UK was saying goodbye, for now, to its new record high.
These two indices remain up 7% and 4.5% year-to-date.
Energy .SXEP stocks - the clear winners of 2022 - were the hardest hit by the recessionary concerns, leading sectoral declines in Europe with a fall of 2% and giving some hope back to those who had shorted oil stocks on bets of a sharp downturn.
Some disappointing results also weighed in. The highlight was Dr Martens' DOCS.L profit warning that sent its shares down as much as 28% to its lowest on record. The bootmaker blamed operational issues at its new U.S. distribution centre.
Here's your opening snapshot:
EUROPE: A DOWN DAY AHEAD (0750 GMT)
It looks that bad news is bad news again for markets, and investors are now selling stocks and buying bonds after weak data out of the United States on Wednesday stoked concerns of a recession in the world's largest economy.
After late-session losses on Wall Street, European stock futures signal declines above 0.5% for the day ahead. This means European equities will fall following 6 straight days of gains to end their longest winning streak since November 2022.
The FTSE 100 will also find it harder to break its previous record high, a milestone which was within close reach only a couple of sessions ago. FTSE futures were down 0.5%.
Newsflow from the corporate front is unlikely to help much either. Traders see losses for shares in Geberit and Boohoo after disappointing results. A profit warning at Dr. Martens could knock its shares down 10%.
Other updates should be welcomed though, including from Premier Foods and Zur Rose. Calls on Bankinter were mixed.
TURBULENCE (0720 GMT)
The December snowstorms that sent Southwest Airlines LUV.N and U.S. air travel into chaos last year may be sending a chill through markets' soft-landing hopes for the broader economy.
Traders took Wednesday's weak U.S. production, retail sales and producer price data badly, selling risk assets and buying safer ones. Bond markets shrugged off hawkish rhetoric from non-voting Fed officials Bullard and Mester to rally.
It is hard to gauge, however, how much to read in to a month typically distorted by seasonal adjustments for holidays and in this case badly affected by the weather.
Still, the mood has lingered over stocks and Asia has carried on with the bond rally, driving benchmark 10-year treasury yields US10YT=RR another five basis points lower and toward a test of the 200-day moving average.
Fed voters Lael Brainard and John Williams might get more of markets' attention at events later in the day.
Elsewhere, the dust is settling quickly on the Bank of Japan's decision not to bend to speculators' attack on its yield curve control policy.
The yen JPY=EBS has bounced back to where it was before the meeting and the Nikkei .N225 slipped, though calm in Japan's bond market might suggest short sellers are having a breather before re-loading for meetings in March and April.
Markets had little response to the surprise resignation of New Zealand Prime Minister Jacinda Ardern, though it is a handy reminder to expect the unexpected in 2023.
Key developments that could influence markets on Thursday:
Economics: U.S. housing starts, jobless claims and Philly Fed business index
Speakers: Fed's Brainard and Williams, ECB's Knot and Lagarde
A tale of two FTSEshttps://tmsnrt.rs/3XCV5Gw
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