Live Markets: The case to stay exposed to low leverage stocks
19/01/2023 10:22
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STOXX 600 down around 1%
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Miners, oil lead fallers
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Bonds rise after weak U.S. data
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ECB's Lagarde speaks at 1030 GMT.
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U.S. stock futures inch lower
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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.
(Danilo Masoni)
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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:
(Danilo Masoni)
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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.
(Danilo Masoni)
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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
(Tom Westbrook)
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