Live Markets: Euro zone underlying inflation below target already - Deutsche Bank
01/12/2023 12:40
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STOXX 600 up 0.5%
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Market mulls slower inflation
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Miners lead gains after China factory data
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Light maker Signify shines
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Worldline shares surge almost 12% after report Credit Agricole exploring stake
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EURO ZONE UNDERLYING INFLATION BELOW TARGET ALREADY - DEUTSCHE BANK (1239 GMT)
Measures of underlying inflation in the eurozone could be below the bloc's 2% target already
Deutsche Bank said in a Friday note burrowing into sub metrics in the recent releases.
If they're right, it would increase the chances of the European Central Bank starting to cut
rates soon, weighing on the euro, but boosting European government bonds.
Inflation momentum has been slowing quickly in the euro zone, and flash data for November,
released Thursday, showed headline year-on-year consumer price growth dropped to 2.4% in
November from 2.9% in October, well below expectations for 2.7%, dragged lower by nearly all
items.
So called core inflation also dipped but was at 3.6%. The Euro zone, like many major
developed economies has a 2% inflation target.
However, Deutsche go back to the final data release for October, which contains various
underlying inflation metrics - several only reported on a year on year basis - and decide: "it
is quite evident that in Oct-23 underlying inflation in the euro area may have already been
running at target."
The measures include core inflation excluding clothing, holiday and air transports, which
Deutsche say is a good proxy for underlying inflation, the Bank of France's 'finecore' measure
of inflation, and the ECB's super core inflation metric.
With a bit of fiddling around with recent releases' three month moving averages, and working
out what they would indicate on an annualised basis they conclude: "recent (inflation) momentum
has been close to target and much weaker than suggested by yoy% readings."
As for the market impact, George Saravelos, the bank's head of FX research, says "The risks
of an ECB rate cut as soon as Q1 are rising," and so "we see no reason to be chasing EUR/USD
higher above 1.10."
The euro was last at EUR=EBS $1.0897 having poked its head above $1.10 earlier this week.
(Alun John)
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DEFENSIVES TO SHINE IN 2024 - BOFA (1157 GMT)
Defensive stocks in Europe will outshine their cyclical peers next year, according to Bank
of America equity strategists.
They have slapped an overweight weighting on defensives, and an underweight on cyclicals,
citing intensifying credit-cycle weakness, a roll-over in the U.S. fiscal impulse and reduced
support from order backlog liquidation as reasons.
"This would imply scope for wider credit spreads and lower bond yields ahead, both of which
tend to be associated with defensive outperformance, leaving us overweight in consumer staples
and pharma," write the BofA strategists.
They also lift telecoms to overweight, which they say tends to benefit in periods of rising
risk premia.
BofA sees the recent outperformance of cyclicals reversing, as the macro cycle rolls over,
and they are underweight capital goods, construction materials and autos.
(Lucy Raitano)
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2024, A 'MAKE OR BREAK' YEAR FOR EUROPEAN REAL ESTATE - BARCLAYS (1051 GMT)
It has been a tricky year for real estate stocks which were weighed down by expectations of
monetary tightening, but Barclays analysts think the clouds over the sector should begin to
clear in 2024 as new opportunities emerge.
They expect transaction markets to reopen but with lower prices than current book values,
which should favour companies with capital or access to capital.
Year-to-date transaction volumes are down 54% from a year ago and 43% below the 10 year
average, due to a significant gap between sellers and buyers' price aspirations, according to
the broker's calculations.
This gap will shrink during 2024, as long as sellers' pricing expectations come down
materially.
Clocking a more than 15% rise in November, European real estate stocks .SX86P are up about
3% this year, just a third of the gains in the pan-European benchmark index STOXX 600.
Barclays is positive on the listed real estate market in 2024 and beyond, but warns
it's unlikely to be a straightforward path.
"The sector needs equity capital both to withstand the impact from asset values rebasing as
transaction markets reopen and to take advantage of the opportunities we expect to emerge", it
says.
Barclays also believes that the next decade will be characterised by a shift back to public
real estate from private, as listed companies generally have better starting balance sheets than
private peers and access to permanent equity capital.
Barclays is "overweight" on Land Securities Group LAND.L , Unibail-Rodamco-Westfield
URW.PA , Icade ICAD.PA , Unite Group UTG.L and LondonMetric Property LMPL.L , while
"underweight" on Vonovia VNAn.DE , Aroundtown AT1.DE , Colonial COL.MC , Covivio CVO.PA and
Cofinimmo COFB.BR .
(Matteo Allievi)
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MINERS GIVE EUROPE A BOOST (0855 GMT)
Europe's STOXX 600 index is adding 0.5% this morning, lifted by basic resources .SXPP
which hit a four-month high in early trading, up 2.9%.
London-listed miners are the biggest supportive weights, with the likes of Anglo American
AAL.L , Rio Tinto RIO.L and Glencore GLEN.L all rising between 2.6%-5.6%.
The rises come after mixed factory activity data for China in November, which suggested more
stimulus will be needed to shore up economic growth.
On a sector basis, the biggest drag is real estate .SX86P and food and beverages .SX3P
though they are only falling a marginal 0.1%.
Shares in the world's biggest light maker Signify LIGHT.AS are shining, up around 5% after
the company announced a new organisation structure to reduce costs.
Europe's biggest faller is German IT firm Bechtle BC8G.DE , down 5.6% after announcing a
convertible bond issue for up to 300 million euros.
In the UK, Ceres Power CWR.L is the biggest faller, losing up to a fifth of its value
after a post-close trading update on Thursday and some brokerage cuts.
(Lucy Raitano)
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EUROPEAN FUTURES FLASH GREEN AS MARKET DIGESTS SLOWER INFLATION (0729 GMT)
The STOXX 600 .STOXX is heading for a positive start to Friday, as Thursday's
softer-than-expected inflation reads keep markets flashing green.
EuroSTOXX50 .STXEc1 futures, FTSE futures .FDXc1 and DAX futures .FDXc1 are all
indicating rises of 0.4%-0.5% at the open.
It builds on Thursday's gains, when European shares hit a more than two-month high after
data showing a drop in inflation in the U.S. and Europe boosted bets that central banks will
soon be cutting interest rates.
In company news, British sports and fashion group Frasers FRAS.L said it will seek to buy
SportScheck's business and assets out of administration after the German sporting goods retailer
filed for insolvency.
Attention will also be on British drugmaker GSK GSK.L after CEO Emma Walmsley gave an
upbeat assessment of the new respiratory syncytial virus (RSV) vaccine.
Struggling Swedish streaming company Viaplay VPLAYb.ST meanwhile said it planned to raise
new equity and restructure its debt in a rescue plan.
(Lucy Raitano)
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MARKETS WARY POWELL MAY UNDERMINE RATE-CUT BETS (0700 GMT)
With a blockbuster November in the rear view mirror, investors are gearing up for a bright
start to December in Europe, full of expectations that central banks will soon start cutting
rates, although a "fireside chat" with Fed Chair Jerome Powell later in the day could spoil the
party.
A calendar full of manufacturing PMIs from countries across Europe will provide a clearer
picture of the region's economy, but in the meantime futures indicate a higher open for European
bourses.
Data on Thursday from both the euro zone and the U.S. showed inflation was easing, spurring
expectations of rate cuts by central banks, with money markets pricing in more than 100 basis
points in rate cuts next year from both the Fed and the ECB.
The disconnect between financial markets and central banks has only deepened as central
banks push back against talk of rate cuts while markets take in the relatively more benign
inflation data of recent weeks.
Fed policymaker Christopher Waller, an influential and hawkish Fed voice, shook things
up a bit this week, however, saying he was increasingly confident inflation would return to its
2% target. That helped to embolden markets to take on rate-cut bets.
Markets are now pricing in a 46% chance of the central bank cutting rates in March, the CME
FedWatch tool showed. A week earlier it was priced at 27%.
With that backdrop, the spotlight will shine brightly on Powell when he takes the stage
later on Friday. Whether Powell chooses to stay away from policy comments or talk about rates
remains to be seen. Whatever he says, or not, will sway the markets.
Over in Asia, the last month of the year got off to a tentative start, with shares lower,
the dollar on the defensive and oil prices extending their recent decline.
In company-related news, Tesla's TSLA.O long-delayed Cybertruck is here. The vehicle, made
of shiny stainless steel and shaped into flat planes, will be priced from $60,990, more than 50%
above what CEO Elon Musk had touted in 2019.
Key developments that could influence markets on Friday:
Economic events: UK nationwide house prices for November, Manufacturing PMI data from
France, UK, Germany and euro zone.
Speakers: Bank of England MPC member Megan Greene, ECB President Christine Lagarde, Fed
Chair Jerome Powell.
(Ankur Banerjee)
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US Dollar Index https://tmsnrt.rs/3T0aykU
Rates rethink https://tmsnrt.rs/3RokweO
Investors expect ECB to cut rates first as economy slumps https://tmsnrt.rs/3QWRUHR
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