News: Latest News
Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesBusiness LeadersFinance Pro.CalendarSectors 

EUROPEAN MIDDAY BRIEFING - Stocks Fall Ahead of Expected Mixed US Open

01/28/2022 | 06:42am EDT



European stocks fell ahead of an expected mixed start for Wall Street.

A volatile month has whipsawed investors, who have juggled worries over the pace of Federal Reserve interest rate hikes, a mixed earnings season, the ongoing pandemic fallout and geopolitical worries surrounding a potential Russia invasion of Ukraine.

"Some of the global-market turmoil has subsided, now that the big events of the week are behind us," IG analysts said, adding that the atmosphere is still cautious. "It looks to be a quieter end to the week, with only U.S. PCE data on the economic ticket for the day, while earnings take on an industrial focus with Chevron and Caterpillar."

Shares on the move: Shares in ITV gained 1.5% to 113 pence after Barclays upgrades the U.K. broadcaster to overweight from equal-weight and increases its price target to 160 pence from 140p.

European broadcasters are almost universally unloved by investors who believe the trend of people watching more on-demand TV rather than on traditional TV channels will reduce advertising revenues, Barclays said.

Still, ITV's ad revenues have been rising and 2022 shouldn't be any different, the company has significant M&A opportunities, investors could re-evaluate its TV production business if management achieves its 5% annual revenue growth target and the shares are arguably cheap, Barclays said. "ITV is our non-consensual value call for 2022," Barclays analysts said.

Stocks to watch: LVMH looks well-placed to face near-term headwinds after second-half earnings beat expectations and sales growth continued to accelerate in the year's final quarter, Citi said.

The French luxury-goods giant's 2021 results followed impressive prints from luxury players like Swiss group Richemont, Italians Prada and Tod's and Danish jeweler Pandora, and didn't disappoint, Citi said, highlighting organic growth over two years in 4Q, exceptional operating profit in 2H, a generous dividend and a positive outlook for the new year.

Some near-term headwinds--the Russia-Ukraine crisis, stock-market volatility and new pandemic waves in Asia--shouldn't blow LVMH off course, the bank said.

CaixaBank shares should respond positively to its 4Q earnings despite a lower-than-expected net profit of EUR425 million for the period, Renta 4 Banco's equity research analyst Nuria Alvarez said.

Net interest income fell on year, but investors should welcome the strength in income from fees and insurances, the low cost of risk, and the lender's plans to increase the dividend payout for the next year. As for the share-buyback program to be carried out in 2022, Renta 4 Banco estimates that the bank could repurchase around 8% of its capital.

UniCredit reported a bigger net loss in the fourth quarter, mainly due to integration costs and higher investment losses, but its underlying earnings beat expectations as did revenue. Track the analysts' views of the earnings here. [[{%22t%22:%22symbol%22,%22q%22:%22djn:djnabout:UCG.MI%22,%22c%22:%22IT:UCG%22,%22n%22:%22UniCredit%20S.p.A.%22,%22cs%22:%22STOCK/IT/XMIL/UCG%22,%22ds%22:%22UCG.MI%22}, {%22t%22:%22operator%22,%22q%22:%22and%22,%22n%22:%22and%22}, {%22t%22:%22freetext%22,%22q%22:%22market%20talk%22,%22n%22:%22market%20talk%22}]&searchFilterState=open&includeDefaultFilter=true]

Data in focus: Germany's economy shrank 0.7% in the fourth quarter as restrictions were tightened amid a surge in Covid-19 cases and weighed on the services sector in the form of lower demand, UniCredit's chief German economist Andreas Rees said. UniCredit expects economic activity to shrink again in 1Q due to Covid-19 and supply shortages.

Looking beyond to 2Q, a strong and sustainable recovery in Germany inevitably requires a significant easing of supply shortages, UniCredit said.

"Otherwise, companies in the manufacturing and construction sector cannot work off their backlog orders and restock their record-low inventories to a more normal level," Rees said. Encouragingly, the latest survey data suggest a tentative easing of supply-side pressures, he added.

The strong reading of the French economy in the fourth quarter is no longer just the mechanical result of reopenings, but a sign of a solid economy, which is starting 2022 on a strong footing, even if the first quarter looks more difficult, Charlotte de Montpellier, ING's economist for France, said.

The pace of growth has slowed from the third quarter as a consequence of a resurgence of the coronavirus, the difficulties in supply chains and the acceleration in inflation, the economist said.

France's economic slowdown will probably continue well into the first quarter, de Montpellier said. Positive quarterly growth, though close to 0%, is expected in 1Q, according to ING.

U.S. Markets:

Stocks were poised for a fourth consecutive weekly loss as investors awaited earnings from Chevron and Caterpillar, as well as the Federal Reserve's preferred inflation gauge.

In premarket trading, Apple shares rose 4.9% after the biggest U.S. company by market capitalization posted record revenue and profits. Shares of brokerage Robinhood Markets, which reported a quarterly loss of $423 million, dropped 14% premarket. Tesla recovered 1.9% premarket after sliding 12% Thursday, highlighting the volatility wracking technology and growth stocks as investors prepare for the Fed to tighten monetary policy.

"Cheap money is like a comfort blanket for investors and for markets," said Jane Foley, senior foreign-exchange strategist at Rabobank. "Almost inevitably, you start to withdraw some of that cheap money and you're going to have more volatility in the markets."

Stocks have been choppy despite another solid round of earnings. Almost a third of the companies on the S&P 500 have reported fourth-quarter results and 78% of them have beaten analysts' estimates for earnings per share, according to FactSet. Companies due to report before the bell Friday include Chevron, Caterpillar and Colgate-Palmolive.

Investors will parse consumer-spending data from the Commerce Department at 8:30 a.m. ET. Economists expect the figures to show spending fell in December as rising coronavirus infections dented demand. Also due at 8:30 a.m., the Fed's preferred inflation gauge is forecast to show a continuation of the price pressures that have pushed the central bank to unwind stimulus.


Expectations for five interest rate rises by the Fed within the next year are priced in but the dollar still has scope to appreciate, UniCredit said.

"We think that there is still room for the USD to strengthen as the U.S. interest-rate advantage with respect to the rest of the world becomes more evident and there is no major incentive for investors to consider a trend reversal," UniCredit analysts said.

However, some profit-taking against the safe-haven dollar might emerge Friday after a rebound in Asian equity markets, they said.

The euro's recent depreciation against the dollar is likely to be on the European Central Bank's radar at its Feb. 3 meeting, Barclays said. EUR/USD has plummeted lately on the Fed's "notable hawkishness," Barclays analysts said, noting that the Fed indicated it would start raising interest rates in March.

The ECB might also turn "hawkish" as eurozone and global inflation continue to accelerate above forecasts, they said. "Indeed, euro-area flash inflation data for January will be released the day before the meeting: another upside surprise relative to consensus (following on from December's upside surprise) could potentially encourage a somewhat more hawkish tone."

The Bank of England isn't pushing back against the market's interest rate rise expectations as it probably wants to encourage a stronger pound, ING said. The market sees the benchmark rate rising to 1.35% by December from 0.25% currently, ING analysts said.

Previously the BOE may have issued a "verbal rate protest" against such pricing to weaken sterling in a deflationary environment with poor global demand but now it's likely welcoming sterling strength to fight against higher energy prices, they said.

EUR/GBP could fall towards 0.8275 if the BOE lifts rates by 25 basis points and doesn't protest against rate bets at next Thursday's meeting, they said.


As long as the ECB can hold its nerve, as seems likely, then lift-off pricing is stuck, Citi's rates strategist Jamie Searle said. How many interest rate rises the market can price from 2023 is likely to depend, at least for the coming months, far more on the Federal Reserve than the ECB, he said.

Citi sees bearish risks for Bunds as obvious, but it is of the view that Bund yields can remain, on average, negative in the coming months, "especially with signs that policy error concerns may keep terminal rate pricing sticky," Searle said.

Government bond syndications in the eurozone in February are expected to pivot away from the 10-year sector and toward the long end, Barclays's rates strategists said.

They expect a new 20-year Italian BTP, a 30-year Spanish bond and a 30-year Belgian OLO. Barclays calculates that eurozone sovereigns have already completed approximately 11% of gross government bond issuance expected this year, with the volume boosted by heavy syndicated supply.

The overall volume of syndicated government bond issues amounted to close to EUR50 billion in January, Barclays calculates.

As Spanish government-bonds yield spreads over German Bunds have widened less than Italian BTP and French OAT spreads recently, Spanish government bonds are starting to look rich but the outperformance is justified, said Societe Generale's rates strategists.

"The falling correlation of SPGB [Spanish government bond]-Bund with BTP-Bund and OAT-Bund may be justified in our view, at least in the near term," they said.

(MORE TO FOLLOW) Dow Jones Newswires

01-28-22 0642ET

Stocks mentioned in the article
ChangeLast1st jan.
PRADA S.P.A. 1.03% 44 Delayed Quote.-11.82%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) 0.76% 66.25 Delayed Quote.-14.60%
Latest news "Markets"
05/27U.S. FDA declines to approve Eton Pharma's anti-seizure drug
05/27The WSJ Dollar Index Falls 1.18% to 94.31 -- Data Talk
05/27Robinhood agrees to settle customer lawsuit over 2020 outages
05/27BOVESPA Index Ends the Week 3.18% Higher at 111941.68 -- Data Talk
05/27S&P/TSX Composite Index Ends the Week 2.73% Higher at 20748.58 -- Data Talk
05/27S&P MERVAL Index Ends the Week 6.31% Higher at 93683.29 -- Data Talk
05/27IPC Indice de Precios Y Cotizaciones Ends the Week 1.83% Higher at 52463.55 -- Data Talk
05/27World stock markets rally, treasury yields fall on inflation data
05/27TSX posts biggest weekly gain since February as selling wanes
05/27Wall Street rallies, snaps longest weekly losing streak in decades
Latest news "Markets"