Earnings growth to underpin equities in 2024-Lombard Odier
STOXX Europe 600 down 0.6%
Healthcare drags; ArgenX plunges
Rolls-Royce eyes profitability boost
S&P 500 futures steadies
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EARNINGS GROWTH TO UNDERPIN EQUITIES IN 2024-LOMBARD ODIER (1058 GMT)
Strategists at Lombard Odier see positive earnings growth as major factor underpinning equities in 2024. They prefer U.S. stocks over Europe and favour UK equities over China.
In the Swiss private bank's 2024 outlook, head of equity strategy Edmund Ng said he sees 5%-10% upside for U.S. equities next year.
Though corporate revenue growth is expected to slow in line with decelerating economic activity, Ng expects margins to remain resilient, which should lead to positive earnings growth for most equity markets in 2024.
Zooming in, communication services and energy are expected to outperform in the first half. Ng says he prefers consumer staples and telecoms over healthcare, real estate and utilities.
"We believe slower growth will exert downward pressure on price-to-earnings ratios, but potential interest rate cuts in the second half will provide some support, resulting in broadly unchanged valuation multiples," writes Ng.
An optimistic scenario would be manufacturing activity recovering, in which case, Ng sees a potential 15%-20% upside for the S&P 500 by end-2024.
"Conversely, the cumulative effect of monetary tightening could finally push the economy and corporate earnings into recession, the latter defined as a 20% contraction, as was widely expected at the beginning of 2023."
In that scenario, he believes PE multiples would rise moderately in anticipation of an economic recovery, but that see the S&P 500 end 2024 at around 3,750, 17.6% below Monday's close.
BOFA: "WE LIKE THE EUROPEAN BANKS" (1025 GMT)
Central banks might be done with rate hikes, but BofA Global Research is upbeat about 2024 prospects for European banks.
Its argument hinges on rock-bottom valuations and even though revenue growth will slow after an interest-margin binge, BofA says banks have other ways to support income.
"We like the European banks, at four-decade lows," BofA writes, referring to a 12-month forward PE ratio at a 40-year low.
"In a lower-rate 2024, banks have replicating portfolios, fees and, yes, volumes, to support revenues. We see no stress at banks and little at consumers; the residential property market is already stabilising and banks will lend quickly into recovery," it adds.
All in all, BofA sees a calm year of re-rating ahead.
INFLATION? IT'S NOT STICKY AT ALL (1010 GMT)
Several market participants worry that inflation could run persistently above central banks' 2% target, meaning rates will have to stay high for a long time.
Stephen Jen, chief executive officer at Eurizon SLJ Capital, disagrees. He sees a quick decline in consumer price dynamics and a steady state below pre-pandemic levels.
"The chart below shows the rapid rate with which inflation has declined in these two jurisdictions (U.S. and euro area), making the rise and the fall in inflation quite symmetric, contrary to the popular opinion that the fall in inflation would be much slower than its rise," he says.
"In the long run, we see the new steady-state inflation being only marginally higher than the lows witnessed before the Pandemic," he adds. "The structural drivers of inflation – demographics, globalisation, trade, and the energy transition – seem to point to lower inflation, not higher inflation."
According to Jen, who previously headed up currency research at Morgan Stanley, de-globalisation will not fuel inflation, as it is far from clear that the industrial capacity divested from China would end up in higher-cost jurisdictions. Neither will the green transition as prices of most critical equipment are plummeting because the supply has run ahead of demand.
Last but not least, artificial intelligence (AI) will be disinflationary and productivity-enhancing, like previous technological innovations, Jen says.
STOXX LOWER, HEALTHCARE DRAGS, ROLLS ROYCE SHINES (0916 GMT)
European equities were off to a weak start onTuesday with the region-wide STOXX 600 .STOXX falling 0.6% as the healthcare .SXDP sector led declines, down 1.3%.
Drugmaker Novo Nordisk NOVOb.CO and luxury group LVMH LVMH.PA, Europe's two most valuable companies, were the biggest negative weights, both falling over 2% in early trading.
ArgenX ARGX.BR followed with a 16% slide after its VYVGART Hytrulo drug failed to meet primary and secondary endpoints in a study for the treatment of an autoimmune disorder.
Losses were contained but broad based. Insurers .SXIP and banks .SX7P outperformed, moving around parity.
Rolls-Royce RR.L was a bright spot. Its shares rose 6%, bringing YTD gains to 170%, as investors welcomed the British engineer's to become a much more profitable business with a goal to boost civil aerospace margins to 15-17% from 2.5%.
EUROPE SET FOR WEAKER START (0747 GMT)
European shares were set for a weaker start on Tuesday, as traders consolidate November gains that have set the region wide STOXX 600 .STOXX for its best month since January, up over 5%.
Investors have been covering short positions, encouraged by easing inflation pressures that have bolstered bets that the Fed and the ECB have finished with rate hikes and could possibly cut borrowing costs at some point next year.
EuroSTOXX50 and FTSE futures fell 0.4 and 0.3% respectively following a lower close on Wall Street, although Asian shares rose slightly, as investors looked ahead to a crucial U.S. inflation report later this week. S&P 500 futures dipped 0.2%.
Corporate news in Europe was thinning out as the holiday shopping season kicked into gear. Data on Monday showed British shopper numbers and transactions edged lower on Black Friday versus last year.
Like-for-like retail growth at Pets at Home PETSP.L was about 4% in the early weeks of Q3, as Britons gear up for the Christmas season and spend on their furry friends.
Still in the UK, Rolls Royce RR.L vowed to deliver up to 2.8 billion pounds of operating profit in the medium term by increasing the margin on its civil aerospace business.
EasyJet EZJ.L reported 2023 earnings in line with analyst expectations after a year of robust travel demand and forward bookings, but the low-cost British carrier said geopolitical instability would weigh on results in the current quarter.
In Brussels, drugmaker Argenx ARGX.BR was set for a big fall at the open on news that an ADVANCE-SC study of its Vyvgart Hytrulo drug - did not meet primary or secondary endpoints. A convertible bond could put pressure on video game producer Ubisoft UBIP.PA
Broker decisions could also drive price action. Continental CONG.DE rose 1.7% on Tradegate after Berenberg upgraded the stock to buy and Infineon IFXGn.DE was also higher after a Jefferies upgrade to buy. DB cut ING INGA.AS to hold and Julius Baer BAER.S was cut to underweight at Morgan Stanley.
CHINA'S SHEIN STEALS MARKET SPOTLIGHT(0656 GMT)
Asian markets kept up their November rally and the dollar dipped to three-month low, but big-name fast-fashion company Shein stole the market spotlight with an IPO filing that will likely test investor appetite for new listings.
Shein, known for its $10 tops and $5 biker shorts, filed confidentially for a U.S. IPO, sources told Reuters, with the China-founded and Singapore-based firm expected to go public sometime next year.
Whether this potential blockbuster gives a fillip to the lacklustre IPO market remains to be seen, after some high-profile public debuts this year failed to impress.
On a macro level, the theme remains the same: Traders are getting fidgety about whether the Fed is well and truly done with interest rate hikes, and when it is likely to start cutting rates - presumably next year.
The Fed's focus on beating inflation means Thursday's core personal consumption expenditures data, the central bank's preferred measure of inflation, will be the main event this week, with investors hesitant to place major bets and keeping share markets within a narrow range.
Risk appetite got a boost this month after data releases that hinted at easing inflation, stoking expectations that central banks had reached their interest rate peaks.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS is on course for its strongest monthly performance since January with a nearly 7% gain.
Japan's Nikkei, Asia's best-performing stock market this year, is set for its strongest monthly result in three years.
European stock markets are likely to see a subdued start to Tuesday, futures indicate, with a bare economic calendar leaving investors treading cautiously ahead of major economic data.
Meanwhile, British shopper numbers and transactions on Black Friday were lower than last year's, disappointing retailers looking for a pick-up in spending after a subdued October.
In contrast, U.S. spending online on Cyber Monday is set to exceed $12 billion, a record, according to preliminary estimates from Adobe Digital Insights, with price-conscious consumers favouring buy-now pay-later services to ease stress on their wallets.
Key developments that could influence markets on Tuesday:
France consumer confidence for November, Euro zone money M3 annual growth for October.
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