Hey ChatGPT, are you AI's "iPhone moment"?
STOXX 600 up 0.3%
Miners lead gainers
China PMI highest since April 2012
U.S. stock futures edge up
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HEY CHATGPT, ARE YOU AI'S "IPHONE MOMENT"? (1240 GMT)
Analysts at BofA Global Research jump into the generative AI hype, likening ChatGPT and friends to the "the iPhone moment for AI" which are opening the doors to fully capitalize on the data revolution.
The bank has identified 20 stocks with a combined value of about $8 trillion that could benefit from the AI arms race, with hardware makers and cloud software analytics firms being some of the big winners.
Companies like Google parent Alphabet could make their search ads more targeted and relevant, increasing search monetisation and improve search overall, while Apple could develop its own search engine or renegotiate its partnership with Google as Microsoft's Bing has become more competitive.
Meanwhile, Adobe could provide a "paradigm shift" to content creators through the use of AI in its licensed software and Meta Platforms can use AI to improve distribution of creator content.
Data volumes, which are the backbone of AI, are ballooning every few years, creating new words in the English language and BofA says the world has reached the yottabyte level (which is a trillion terabytes).
However, JPMorgan in an Indian IT note recently flagged how generative AI models could likely slow down market share gains and deflate pricing in the short term. Indian tech firms such as Infosys and Tata Consultancy Services have started introducing courses and modules to upskill their employees in generative AI, reports say.
UK'S ECONOMIC TROUBLES RIPPLE INTO HOMEBUILDERS (1147 GMT)
UK homebuilders index .FTNMX402020 is heading for its biggest one-day fall since last October. The index is down almost 4% after a set of very gloomy economic data and corporate results added to signs of a slowdown in the British housing market in the face of high inflation and surging borrowing costs.
Mortgage lender Nationwide said British house prices in February dropped by 1.1%, the most in more than 10 years.
Separate Bank of England data showed British lenders approved the lowest number of mortgages in January since 2009, excluding a slump at the start of the COVID-19 pandemic.
On the corporate front, Persimmon PSN.L shares dropped to the bottom of London blue chip index after the company slashed its dividend by 75% and warned Britain's slowing housing market would hit annual profits and home-building targets.
As a result, the FTSE index of homebuilders slipped to a one-month low in early London trading. The index posted its worst ever annual drop in 2022.
“Investors have been pricing in a sharp downturn in the housing sector for months, but each new data point showing further cracks in the industry has only served to take share prices even lower,” says AJ Bell investment director Russ Mould.
Barclays equity analysts say Persimmon sales rates are even weaker than they had expected.
The outlook is grim. Worries about job security, higher mortgage costs, inflation pressure on household finances have created "a cocktail of problems for people looking to move house and that’s caused a ripple effect in the property market," Mould adds.
Myron Jobson, senior personal finance analyst at Interactive Investor notes that falling houses prices meant sellers are accepting huge discounts on asking prices.
FOMC RISKS FOR THE U.S. DOLLAR (1101 GMT)
The U.S. dollar decoupled from rates between November 2022 to January 2023, as investors lost some interest in safe-haven currencies, according to JPMorgan.
U.S. 10-year Treasury yields are almost back where they were in mid-November, having risen from a trough of around 3.32% in early January. The dollar, meanwhile, has recovered as well, but it's still about 8% below those mid-November levels.
The big unknown is what is going to happen next.
“Another very strong payrolls in March would push the USD higher, although the current macro landscape is not yet like the one in 2022, which was able to deliver double-digit appreciation in the broad dollar index,” JP Morgan forex strategists say.
“To revert more fully to 2022, we need to see another vol shock or a re-escalation of geopolitical risks,” they add.
Bottom line, “with another payroll and CPI print that could be potentially pivotal ahead of the March 22 FOMC meeting, we think it is prudent to keep overall USD exposure light.”
“If these events (Fed FOMC and economic data) deliver outcomes that result in stabilization of U.S. terminal rates, that would then be the green light for the USD to resume weakening, barring other volatility shocks,” JP Morgan says.
POSITIONING IS NOT YOUR ENEMY (1025 GMT)
The big short-covering push that made for a sparkling start to 2023 is clearly behind us. But even though positioning is no longer a big tailwind for stocks, it's unlikely to turn into a headwind as the first quarter gets into its final month.
"While technicals/sentiment are no longer depressed and current positioning is less of a tailwind for equities, they are not stretched either," Barclays strategist Emmanuel Cau says. "Absent imminent recession, we think moderate positioning lowers the threat of a sharp reversal leading to big equity drawdowns".
The UK bank says equity exposure among macro hedge funds and risk parity is below average and mutual funds haven’t stepped up equity buying much. This could mean that if earnings stay resilient this year, corporate share buybacks are likely to provide "some bid" to equities as blackout ends.
More on positioning here: The bears are back, but bulls still in control
CHINA PLAYS NUDGE UP THE STOXX (0915 GMT)
The surprisingly positive China PMI data is doing its thing in Europe, with gains in China-exposed stocks like miners and luxury helping the STOXX 600 .STOXX kick off the new month with marginal gains after rising 1.7% in February.
The pan-European equity benchmark index was last up 0.2%, while London's commodity-heavy FTSE 100 .FTSE and Frankfurt's export-oriented DAX .GDAXI both advanced 0.5%. Strength in China plays more than offset a slide in banks led by BNP BNPP.PA after Belgium started to sell part of its stake in the French lender following a good run in the stock.
Euronext ENX.PA rose in relief after the company withdrew its offer for Allfunds, which dropped 12%, to the bottom of the STOXX. UK homebuilders .FTNMX402020 were another weak spot, down 4%, after the British competition watchdog launched a study following concerns builders are not delivering homes at sufficient scale and following a profit warning from Persimmon PSN.L.
Here's your opening snapshot:
EUROPE EYES STEADY START (0735 GMT)
European shares are set to kick off the first trading session of March on a stable footing, as positive China data offsets worries over sticky inflation that is bolstering the case for another big rate hike from the European Central Bank later this month.
Just as M&A in the region showed timid signs of picking up, Euronext ENX.PA withdrew its 5.5 billion-euro offer for fund distribution firm Allfunds ALLFG.AS, which called the terms of the exchange operator's bid inadequate. Allfunds shares were seen falling 10% at the cash market open.
BNP Paribas BNPP.PA was also set to fall on news that Belgium was preparing the sale of a third of its 7.8% equity stake the euro-zone's biggest bank.
A flurry of earnings are on the radar too. Nivea maker Beiersdorf BEIG.DE forecast organic sales growth to slow after a bumper 2022, while logistics group Kuehne und Nagel KNIN.S reported a 43% drop in Q4 operating profit and said geopolitical and inflationary challenges will persist. Just Eat Takeaway.com TKWY.AS swung to a small 2022 core profit.
Oilfield services company Saipem SPMI.MI could get a boost after a $400 million contract in Africa.
EDP Renovaveis EDPR.LS is also on the watchlist after sources said the company has been sounding out investors to take a stake to help finance its push for green growth.
Euro STOXX 50 STXEc1 futures and FTSE 100 contracts FFIc1 were last up 0.2 and 0.3% respectively.
BRISK CHINA ACTIVITY SETS THE MOOD (0654 GMT)
After a tentative start to the month, markets in Asia got a jolt from China's manufacturing activity which expanded at the fastest pace in more than a decade in February, and the exuberant mood is likely to seep through to European markets.
The MSCI Asia ex-Japan index was pinned near two-month lows at the start of the day before spiking up 1.4%, and was on track for its best day in nearly two months after China's manufacturing purchasing managers' index for February surged to 52.6, up from 50.1 in January.
The data from China was an exception for the region, where factory activity otherwise stalled in February, but investors bet on recovery in the world's second biggest economy at a time when the U.S. Federal Reserve is likely to stay hawkish for longer.
Meanwhile, Australia's economy grew at its weakest pace in a year last quarter, as strength in trade was offset by rising interest rates and high inflation.
Data from France and Spain on Monday highlighted the sticky nature of inflation, weighing on the continent-wide STOXX 600 index. The index was one of the few to eke out meagre gains for the month of February. And after a euphoric January, traders might wonder what comes next. March madness, perhaps?
March also brings us the next set of central bank meetings, with investors expecting the ECB to hike interest rates by 50 basis points, taking the benchmark rate to 3%. The central bank is due to meet on March 16.
But before that, investors will parse through a raft of economic data, including S&P global manufacturing PMIs for the Eurozone, Germany and France later in the day.
Key developments that could influence markets on Wednesday:
Economic events: UK house prices, S&P Global manufacturing PMI for Spain, France, Germany and Eurozone
Speakers: BOE's Andrew Bailey, Italian central bank governor Ignazio Visco
China's factory activity at a decade highhttps://tmsnrt.rs/3kzzDEq
BofA's AI stock pickshttps://tmsnrt.rs/3Zas6Lr
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