Live Markets: "Premature to take a structural 'buy' position"

Rainforest Resources

05/07/2022 12:35

* STOXX down 0.5%
    * Euro at 20-yr low vs dollar, gas prices rise 
    * Sino-U.S. tensions show signs of easing
    * U.S. futures negative

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    "PREMATURE TO TAKE A STRUCTURAL 'BUY' POSITION" (1134 GMT)
    Equity markets in Europe are lower again on Tuesday with the
STOXX 600  .STOXX  holding just above its lowest level in around
18 months and down 19% from January's peak.
    With central bank rate hikes far from over, or yet to even
begin in the euro zone's case, investors are looking for signs
when it might be time to begin adding risk. 
    According to global multi-specialist asset manager Candriam,
that time is not yet, with their allocation remaining defensive
and positioned for an economic slowdown. 
    "We believe that it is still premature to take a structural
'Buy' position," Candriam writes in its July 2022 outlook,
adding that while valuations have fallen, corporate earnings
have continued to grow. 
    "Expected earnings growth is still too high for 2022 and,
depending on the economic scenario, we expect downward revisions
of various magnitude."
    Candriam says the downward revisions for earnings growth are
needed for equity markets to rebound in a sustainable way, but
adds that falling interest rates should be a catalyst for a new
rotation into growth stocks. 
    In equities, Candriam favours defensive sectors such as
healthcare and consumer staples, while saying that technology
stocks could be increasingly attractive due to a strong
correction in valuations and more limited impact of inflationary
pressures on margins. 
    
    (Samuel Indyk)
    *****
    
    FX IN DRIVING SEAT: EURO WEAKNESS SPREADS TO STOCKS (1045
GMT)
    It looks as though FX is in the driving seat in setting
price action across asset classes in Europe this morning, as
worries over an economic recession and a gas crisis intensify by
the day.
    So following a steady start, euro zone stocks  .STOXXE  took
the way south, taking the lead from a fall in the euro  EUR=EBS 
which plunged to a two-decade low against the dollar.
    "It was Fx that moved first with equity and rates steady...
Then the risk off spread to equities when the move became
significant," says a macro fund manager at a European bank.
    The move in the single currency came just as gas prices
surged anew, doubling from June lows and exacerbating worries
over an energy crisis that has seen Germany's Uniper hit heavily
by a shortfall in gas supplies from Russia. 
    "The biggest problem for sentiment at the moment is gas,"
says a London broker.
    The EuroSTOXX index was last down 0.8%, on course to end the
session at the lowest closing level since November 2020.

    (Danilo Masoni)
    *****
    
            
    STOXX: SEEKING DIRECTION (0834 GMT)
    After a positive start, European shares have given back all
the gains, pushing the STOXX 600  .STOXX  just below parity, as
worries over an economic recession lingered.
    The pan-regional benchmark was last down 0.2%, weighed down
by weakness across cyclical sectors like autos, banks and
miners, while defensive healthcare stocks provided some support.
    The turn lower came as investors looked for direction from
U.S. futures which turned negative after earlier gains in Asian
hours. S&P contracts  ESv1  were last down around 0.3%. 
    Here's your opening snapshot:    
    (Danilo Masoni)
    *****
    
    
    INFLATION VS RECESSION (0636 GMT)
    Yes, recession risk remains high on markets' radar but no,
there are yet few signs that central banks will be swayed in
their determination to aggressively raise interest rates.
    So, it was no surprise that the Reserve Bank of Australia
lifted its key interest rate on Tuesday by 50 basis points to
1.35%. That marks 125 bps of hikes since May and the fastest
series of moves since 1994.  urn:newsml:reuters.com:*:nL1N2YM07C
    And as this table shows, central banks in big developed
economies are opting for large moves to get ahead of price
pressures. The Bank of England is the exception, but then again
it did kick off its tightening cycle ahead of most peers.
    Whether the magnitude of rate hikes now falls, given growing
growth concerns remains to be seen. Markets have already scaled
back rate-hike bets for major economies over the past week or
so, but the mood is volatile to say the least. 
    In bond markets for instance, Germany's 10-year Bund yield
jumped 11 bps on Monday, after three days of falls. Yields on
U.S. bonds, which did not trade on Monday because of the July 4
holiday, are rising as European trade gets underway.
    Meanwhile, upbeat business activity data from Japan and
China are shoring up stock market sentiment. So is a report that
U.S. president Joe Biden is leaning towards a decision on easing
tariffs on goods from China.
    And Chinese Vice Premier Liu He had a "constructive" virtual
dialogue with U.S. Treasury Secretary Janet Yellen on Tuesday,
with both sides agreeing to better coordinate macro policies,
according to China's commerce ministry.  urn:newsml:reuters.com:*:nL1N2YM029
   Stock futures point to a firm open for European equity
markets, and Wall Street too, is expected to open higher after
Monday's holiday.
    
    Key developments that should provide more direction to
markets on Tuesday: 
    - China's June services activity expands at fastest in
almost a year - Caixin PMI  urn:newsml:reuters.com:*:nZRN004NGN
    - Japan's service sector activity grows at fastest rate in
over 8 years - PMI  urn:newsml:reuters.com:*:nZRN004NGG
    - Samsung Q2 solid on server-chip demand, smartphones cloud
outlook  urn:newsml:reuters.com:*:nL4N2YL2CL
    - Final services and composite PMIs everywhere
    - Bank of England publishes Financial Stability Report July
2022 – 0930 GMT.
    - U.S. durable goods data 
    
    (Dhara Ranasinghe)
    *****

    
    EUROPE SEEN RISING AT THE OPEN (0627 GMT)
    European shares look set to rise slightly this morning with
investors keeping an eye on U.S. markets for more direction
following the Independence Day holiday on Monday.
    Euro STOXX 50  STXEc1  and DAX  FDXc1  futures were last up
around 0.6% while contracts on the commodity heavy FTSE  FFIc1 
edged 0.3% higher. U.S. contracts  ESv1  rose around 0.5%. 
    Over in Asia, shares eked out their best day in a week as
positive economic data and hints of easing Sino-U.S. tensions
offered some respite after recent sell-offs.  urn:newsml:reuters.com:*:nL4N2YM0ZZ

    (Danilo Masoni)
    *****

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