Live Markets: How to play a 25 bps hike from the ECB

WestRock Co

12/09/2023 12:34

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      STOXX Europe 600 down 0.1%
    

        * 
      Airbus sags after Pratt & Whitney engine warning
    

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      Smurfit Kappa drops after WestRock takeover
    

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      FTSE 100 gains after UK employment, wage data 
    

  
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    HOW TO PLAY A 25 BPS HIKE FROM THE ECB (1015 GMT)
    The big event of the week in Europe is the European Central
Bank (ECB) meeting on Thursday. 
    Market pricing is roughly balanced between expectations the
central bank will keep rates steady and that they hike by 25
basis points.  But with most analysts thinking the central bank
is nearly done with monetary tightening, investors will be on
the watch for signals about what may come next. 
    Dominic Bunning, head of European FX research at HSBC, says
he expects a 25 bps hike this week but beyond that the focus
will move to recent significant downside surprises to activity
data.
    "It will be difficult for ECB President Lagarde to imply
that further rate hikes are possible," he said.
    BofA's September investor survey showed that growth concerns
remain in Europe, with 89% of investors predicting a further
slowdown in the region in response to monetary tightening. The
survey also shows investors are turning more defensive in their
portfolio allocations.
    With the Fed already expected to cut in 2024, HSBC suggests
any bounce in the euro against the dollar post-hike could
represent a good opportunity to sell the single currency. 

    
    (Joice Alves)
    *****
    
    PHARMA OVERTAKES TECH AS MOST POPULAR IN EUROPE (1019 GMT)
    The surge of drugmaker Novo Nordisk  NOVOb.CO  as most
valuable company in Europe this month comes as investors are
turning more defensive in their portfolio allocations.
    Over the last month, in fact, healthcare has overtaken tech
as the most popular sector among European investors, according
to the latest Bank of America fund manager survey.
    "53% of respondents see further downside for European
cyclicals relative to defensives in response to slowing growth,
marginally up from 50% last month," writes BofA.
    As a result, tech loses the top spot to pharma and utilities
rise to third position, whereas cyclicals led by autos, retail
and chemicals dominate the underweights, it adds. 
    Also noteworthy are banks falling into underweight territory
for the first time since June.               
    (Danilo Masoni)
    *****
    
    
    CAUTIOUS START IN EUROPE AS HEALTHCARE HELPS OFFSET LOSSES
IN TECH (0755 GMT)
    The start has been modest so far in Europe. Healthcare
companies are top of the pile, with Novartis  NOVN.S , Novo
Nordisk  NOVOb.CO , Astrazeneca  AZN.L  and Roche  ROG.S 
helping offset losses in the likes of Airbus  AIR.PA , after
engine supplier Pratt & Whitney on Monday warned about a rare
manufacturing flaw that could ground hundreds of Airbus jets at
any one time in coming years. 
    Meanwhile, shares in Irish packaging company Smurfit Kappa
 SKG.I  dropped by over 12% at one point, after the company
unveiled a merger with U.S. peer Westrock  WRK.N .
    The STOXX 600 is muddling around the unchanged level
 .STOXX , after two days of gains, while the FTSE 100  .FTSE  is
up 0.1%, taking advantage of a touch of weakness in the pound
after data showed the UK labour market is softening and wage
growth did not accelerate last month. That theoretically removes
some pressure from the Bank of England to keep raising rates.
    The broader market is getting some support from a rally in
tech stocks on Wall Street on Monday, after Tesla  TSLA.O  got a
lift from renewed AI-mania, while excitement is building around
the IPO of UK chip designer ARM Holdings, which is due to price
tomorrow. SoftBank Group  9984.T , which owns the company, has
seen investor demand that is six times the amount it is asking
for, people familiar with the matter said last week.
    The European tech sector isn't really feeling the love,
however. 
    The STOXX tech index  .SX8P  is one of today's weakest
performers, behind oil and gas  .SXEP , weighed down by a 1.5%
decline in Germany's SAP  SAPG.DE , which is getting a negative
vibe from rival Oracle's  ORCL.N  disappointing revenues.
    Here is your opening snapshot: 
    
    (Amanda Cooper)
    
    EUROPE HEADS FOR A MODESTLY POSITIVE START (0637 GMT)
    European shares are heading for another day of gains, taking
their lead from gains overnight in Asia and from a surge in tech
stocks on Wall Street yesterday, after renewed optimism over AI
prompted a surge in Tesla stock.  TSLA.O 
    Futures on the STOXX 50  STXEc1  are up 0.2%, while those on
the DAX  FDXc1  are up 0.1%. FTSE 100 futures are showing a 0.2%
gain, thanks in part to a dip in the pound following data that
showed UK wage inflation did not accelerate in August from the
previous month's record pace. On the inflation front, German
wholesale prices continued their downward trend in August,
offering respite to struggling manufacturers last month. 
    Astrazeneca  AZN.L  might be in the spotlight again this
morning, after the drugmaker's shares dropped by more than 3% on
Monday, in part driven by speculation over the departure of its
CEO Pascal Soriot. The company initially declined to comment on
the Mail on Sunday article that carried the news, but later
said: "We do not comment on market rumours. We have regulatory
obligations and were there any truth in a rumour that could
significantly impact our share price we would make an
announcement."
    Meanwhile, Primark owner ABF Foods  ABF.L  has raised its
full-year profit outlook for the second time in four months,
thanks to strong trading at its fast-fashion clothing business
and its food operations. 
    
    (Amanda Cooper)
    *****
    
    CHINA DEVELOPERS CATCH BREAK, BOJ HAWKS TAKE FLIGHT (0617
GMT)
    Chinese property stocks and Japanese government bonds put on
a two-ring show in Asia to start the global day on Tuesday,
setting the tone for Europe.
    The Hang Seng's property index  .HSMPI  kicked off trading
by dropping as much as 2.6% to a fresh September low, but
reports that Country Garden  2007.HK  won creditor support to
delay onshore bond payments by three years saw the index
catapulted to gains of more than 1%.
    The drama isn't over: Sources say the extension applies to
six of eight bonds under discussion, with voting delayed on the
other two. The embattled developer has already dodged default
twice this month, winning a three-year extension on offshore
bond payments and making a last-minute coupon payment.
    Meanwhile, Bank of Japan boss Kazuo Ueda's weekend comments
that the end of stimulus is possible during 2023 is still
reverberating in the local bond market, with the benchmark
10-year yield pushing to a new near-decade peak.
    It puts massive attention on the BOJ's policy meeting next
week, in an important week that also sees policy meetings by the
Bank of England and the Federal Reserve.
    The ECB, of course, kicks things off on Thursday, and
markets are braced for a possible hike after hawkish rumblings
from officials recently - although the odds still stand at close
to a coin toss.  0#ECBWATCH 
    By contrast, the predominant view is for the Fed to forgo a
hike again on Sept. 20, but eyes are trained on tomorrow's CPI
data to see if inflation is playing ball. 
    Today, the focus for macro data watchers is the British jobs
figures, followed by GDP tomorrow. 
    Overnight, BOE uber-hawk Catherine Mann warned it's too soon
to stop raising rates. Traders certainly lean toward a
quarter-point hike next week, putting the probability at about
80%. But they're split on the chances of another, laying just
north of 50/50 odds of one by March.  0#BOEWATCH 
    (Kevin Buckland)
    *****

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Poll sees US CPI inflation rises    https://tmsnrt.rs/3r36xR6
European stocks - September 12    https://tmsnrt.rs/44Nveic
Bofa positioning Europe    https://tmsnrt.rs/3sVN0T3
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