- European stocks up 2%
- Travel and leisure index leads winners
- Focus on the Fed policy meeting
- Nasdaq futures rise
January 26 – Welcome home to real-time market coverage from Reuters reporters. You can share your thoughts with us at [email protected]
POSITIONING BINGO (1143 GMT)
Wild market reversals, bursts of volatility, indexes entering and exiting correction territory: the start of 2022 is a tricky time to position a portfolio in the right direction.
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The Fed tightening cycle and geopolitical tensions around Ukraine seem to have relegated the pandemic to secondary concern, but the consensus is that the macroeconomic environment is still good.
Equity research this morning painted an overall reassuring picture for global equity markets.
UBS GWM argued that bond markets largely refusing to follow the stress in equities suggests there is little concern about the real growth outlook.
“The equity sell-off likely reflects concerns about valuations and positioning, a notion reinforced by the fact that some of the largest selling of risky assets has taken place in the more speculative parts of the market,” they said. they argue.
Citi thinks the 8/18 red flags on its “bear market checklist” suggest investors should buy this dip, especially outside the US
Barclays’ European strategy team ‘finds it premature to position for recession’ and while they warn more pain is always possible in the short term, they advise to stay focused on the bigger picture .
“We expect activity to rebound in the second quarter after Omicron and look for reassuring earnings,” they wrote, adding that investors should take a barbell approach, buy selectively on dips and hold a cyclical/value tilt towards reopening.
Value is also the name of the game at Bernstein who issued a memo supporting an additional tactical bet on value stocks.
Jim Solloway, strategist at SEI, reminded investors that corrections are often temporary and don’t necessarily involve a change in direction.
“Corrections are a temporary setback to a long-term investment strategy, and about half of all corrections since 1966 have resolved within five months,” he said.
Here is Citi’s Global Bear Market Checklist:
Reproduced with permission from Citi Research. Not to be reproduced.
LONDON FX TRADING DROPS RECORDS (1005 GMT)
Trading on the London foreign exchange market hit $2.757 billion in average daily turnover in October, the Bank of England said, down slightly from the previous survey as demand for buying and selling of currencies remained strong.
In its bi-annual survey of turnover at the world’s biggest exchange centre, the BoE said average daily UK exchange volumes fell 6% in October from a record high in April 2021. of $2.948 billion. Read more
This was due to lower trading in swaps and spot products, while turnover in forward contracts was mixed.
The BoE reported a 13% increase in sterling activity in October 2021 compared to April, with the sterling/dollar pair maintaining its position as the second most traded currency pair.
The most traded currency pair remains the euro/dollar, which however registered a decline of 15% compared to April. The dollar/yen, still in the top three, has fallen 17% since the previous survey.
STOXX RALLY, TRAVEL STOCKS SOAR (08:53 GMT)
It appears investors put aside all caution ahead of the Federal Reserve’s policy decision later in the day to return to European equity markets with more conviction.
The STOXX 600 (.STOXX) is up 1.5% after 50 minutes of trading, the Eurozone Volatility Index is below 28 points and all sectors in the region are trading in the dark.
The travel and leisure index is up 4%, leading the gains as investors gain confidence in the sector’s recovery potential.
Take Siftel: “We believe the combination of vaccinations, upcoming COVID medications, milder symptoms of the Omicron variant, and growing political laissez-faire are setting the stage for a dynamic recovery in traffic this summer and the crisis could potentially reach its end”.
Oil stocks, miners and banks are all up more than 2%.
NO TIME TO WALK, CHAIR POWELL (0805 GMT)
Some previous market crises over impending policy tightening have made central bankers think twice about withdrawing significant monetary support. Yet for the Federal Reserve, wrapping up a two-day meeting later on Wednesday, things are now different.
With inflation raging at 40-year highs, the Fed is unlikely to reverse its intention to raise interest rates and will almost certainly signal a March rate hike later Wednesday.
Still, the nearly 9% drop in the S&P 500 this month and the flattening of the US yield curve are not good indicators of sentiment towards the economic outlook and could temper the case for a more hawkish stance from the Fed.
The line between taking action to contain inflation but not tightening policy too quickly to quickly end the recovery is exactly the line that Fed Chief Jerome Powell must tread. Markets will watch his every step.
Meanwhile, the odds are mixed on whether or not the Bank of Canada will raise rates for the first time since 2018 when it meets later today. The bank may have to consider Omicron’s anger when deciding whether to launch a tightening campaign aimed at tackling runaway inflation.
With central banks in the spotlight, Asian equity markets stabilized after three losing sessions. US and European stock futures were higher.
Geopolitical tensions are expected to remain top of mind after US President Joe Biden said he would consider personal sanctions against President Vladimir Putin if Russia invades Ukraine, as Western leaders step up military preparations and plan to protect Europe from a possible energy shock.
Key developments that should further guide markets on Wednesday:
– Microsoft offers strong forecasts, increasing stocks
Fed meeting Read more
– Indebted China Evergrande to hold investor call on Wednesday – sources read more
– Fed policy decision expected at 19:00 GMT
– Bank of Canada meeting
– US Trade Balance of Goods/Inventory/New Home Sales
– US FRN sale 2 years
– Sale of links in the United Kingdom
– American profits: Boeing, AT&T, Nasdaq, Kimberly Clark, Intel, Tesla, Whirlpool
– European results: Essity, Sage Group, Barry Callebaut
EUROPE UP ON FED DAY (0744 GMT)
European stock futures rise slightly ahead of the cash market open as investors cautiously await a policy move from the Federal Reserve that could prompt more rapid tightening action.
Contracts on the Euro STOXX 50, DAX and FTSE indices rose 0.7% to 0.9%, while Nasdaq futures rose 0.5% after another volatile day on Tuesday that saw renewed pressure on technology stocks. Microsoft shares rose in Frankfurt after a strong forecast.
In Asia, stock markets stabilized after three losing sessions. Read more
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