Asian stocks dipped, and European bourses gained alongside US equity futures and cryptos in subdued, choppy trading on Monday as fears over an imminent recession faded away briefly and investors bought the dip after last week's jarring selloff, and near record shorting…
… expecting markets to bounce amid speculation the rout had gone far enough to price in concerns about rising rates and slowing growth.
S&P futures rose 0.7% or 25 points in muted trading, while Nasdaq 100 and Dow futures were up 0.8 and 0.5% respectively, however cash stocks are closed Monday for the Juneteenth market holiday. Bitcoin gyrated around the key $20,000 mark, rebounding above the "nice, round number" after a weekend rout dragged bitcoin briefly below $18,000 amid widespread margin-call driven liquidations. A volatile crypto slump has become emblematic of the pressure on a range of assets from sharp Federal Reserve interest-rate hikes to tame high inflation.
Volatility measures remained elevated as investors look for an entry point into equity markets roiled by soaring price pressures and worries that aggressive monetary tightening will tip major economies into recession. Like a broken record, JPMorgan strategists said pressure on stocks should ease in the second quarter as inflation moderates, which of course they say every other week, even as others – including Morgan Stanley – cautioned that more losses may be in store.
“Both prolonged inflation and/or a sharp increase in rates from central banks will have a deep impact on growth perspectives,” said Jean-François Paren, global head of market research at Credit Agricole CIB. “If anything, current valuations are more the ‘exit point’ than the ‘entry point’.”
European equities rebounded following the worst week for the gauge since March to trade near session highs with the Euro Stoxx 600 rising 0.5% with peripheral indexes faring slightly better. Banks, energy and autos are the best performing sectors. Basic resources underperformed amid a slump in raw-material prices. Swedish engineering group ABB Ltd. declined after postponing a listing of its electric-car charging business, citing volatile market conditions. France’s equity benchmark lagged after President Emmanuel Macron lost his absolute majority in parliament, putting his reform agenda in peril. V2X drops back on to a 29-handle. Here are some of the most notable European movers:
- Renault shares rise as much as 7.6% after Jefferies upgraded the shares to buy, saying the carmaker offers a combination of strategic initiatives, capital release, near-zero core value and cost-driven earnings upside.
- Axfood gains as much as 7.7%, the most since March 23, as Handelsbanken upgrades the food retailer to buy as a “top-notch inflation hedge,” and sees strong earnings support ahead.
- Travel and Leisure stocks are among the best-performing subgroups on the wider Stoxx 600 after IATA predicted that the airline industry will return to profit next year. Among best performers on the SXTP are TUI, the world’s biggest tour operator, +5.6%; British Airways owner IAG +3.1%; Lufthansa +3.5%; Ryanair +2%
- Interparfums gains as much as 4.5% after Oddo BHF upgraded the stock to outperform from neutral, citing cheap valuation and good business levels.
- Varta jumps as much as 5% after Goldman Sachs initiates coverage with a buy rating, saying EV battery order announcements could be a major catalyst for a stock trading near an all-time low on enterprise value-to-Ebitda multiple basis.
- Euromoney rises as much as 29% after the information service business received an approach from Astorg Asset Management and Epiris regarding a possible cash offer.
- Kingspan plunges as much as 16% after its pre-close trading update, with the focus on declining orders that analysts say underline slowing demand, with peers such as Rockwool falling, too.
- Assa Abloy drops as much as 4.8%, the biggest laggard on Stockholm’s large-cap OMXS30 index, after Pareto Securities said it expects demand for the Swedish lock maker’s products to drop.
- EasyJet falls as much as 4.2% as analysts expect downgrades to consensus after the low-cost carrier cut 3Q and 4Q capacity outlook after cutting flights amid disruptions.
- Societe Generale and BNP Paribas retreat in Paris trading after President Emmanuel Macron and his allies failed to win an outright majority in the second round of French legislative elections.
Earlier in the session, Asian stocks edged lower with MSCI’s index of Asian shares dropped for an eighth day, the longest stretch since February 2020, as investors worried about the odds of a global recession amid tighter monetary policies. The MSCI Asia Pacific Index was down 0.3%, poised for an eighth session of declines that’s the longest since early 2020. Rate-sensitive technology shares dragged on the gauge. Materials stocks also fell as a dimming outlook for demand pushed prices of iron ore and some other commodities lower. South Korean and Japanese equities led declines in the region. Chinese stocks stood out with gains as the nation’s banks kept key lending rates unchanged, in line with the People’s Bank of China’s measured easing stance. China has kept monetary policy loose even as global central banks embraced aggressive tightening, and that divergence has been giving the nation’s equities an advantage in recent weeks. Shares of China’s power producers rally after thermal coal futures fell 4.1%, the most since March 10. , amid a gloomy demand outlook. Iron ore and coking coal also tumbled. Iron ore is headed for its eighth straight day of losses, the longest falling streak since September. Chinese prices of coking coal used for steel-making have also slumped since the middle of last week, falling about 12%.
The Asian stock benchmark is at a two-year low, tracking broader risk-off sentiment as concerns over global growth and inflation remain high. Monetary authorities’ focus on battling inflation is increasing worries that tightening may eventually push major economies into recessions. Still, the MSCI regional gauge has performed better than its global peers this month, supported by China resilience. While the recovery road may still be bumpy, “China this year could give the market a surprise,” Yifan Hu, regional chief investment officer and head of Asia Pacific macroeconomics for UBS Global Wealth Management, said in a Bloomberg TV interview. “Monetary policy is quite relaxed, and the economy is recovering. So I think as long as there’s no prolonged city-level lockdowns in the second half, we are positive for China’s market to continue to rally.”
Japanese stocks fell amid growing concerns the US economy will enter a recession as the Federal Reserve tightens monetary policy. The Topix fell 0.9% to 1,818.94 at market close in Tokyo, while the Nikkei 225 declined 0.7% to 25,771.22. Shin-Etsu Chemical contributed the most to the Topix’s decline, decreasing 6.4%. Out of 2,170 shares in the index, 423 rose and 1,679 fell, while 68 were unchanged. “Investors are concerned about holding stocks as an asset class with US recession fears exceeding 50%,” said Masafumi Oshiden, a fund manager at BNY Mellon Asset Management.
In FX, US cash Treasuries are closed for holiday. As such, European fixed income was relatively quiet with Bunds bull-steepening and richening ~3bps across the short end with money markets slightly trimming the policy tightening priced by year end. Gilts bear-flatten, the 2y yield rising 3bps near 2.23%. T-note futures drift sideways, cash USTs remain closed for US holiday. Peripheral spreads are generally steady. French bonds drop, leading semi-core underperformance after President Macron failed to win an absolute majority in Sunday’s Parliamentary elections.
In FX, the Bloomberg dollar index dropped 0.3% after rising last week to the highest since April 2020, while the Norwegian krone outperformed along with commodity currencies as broader market sentiment revived. The greenback weakened against all of its Group-of-10 peers as haven demand declined due to a lack of trading incentives stemming from the US holiday and caution ahead of testimony from Federal Reserve Governor Jerome Powell later this week. The Norwegian krone gained as much as 1.4% against the dollar, after USD/NOK reached the highest level since 2020 last week.
“The broader macro backdrop is still characterized by elevated recession risks, plus uncertainties from the Russian/Ukraine war and the challenge of controlling Covid in China,” Goldman Sachs strategists wrote in a note on Monday. “In this high risk market environment we would expect the broad dollar to remain relatively strong against most crosses”
- EUR/USD gained 0.3% to 1.0533: President Emmanuel Macron became the first president in decades to fail to garner an absolute majority in parliament, meaning he will have a hard time passing legislation, putting much of his agenda in peril. “The news doesn’t seem to have bothered the euro, and being more of a longer-term risk to the eurozone outlook, it is not too surprising,” say ING strategists including Francesco Pesole. “EUR/USD has once again found some anchor around the 1.0500 level, something we expect to happen over the summer months despite volatility looking likely to remain elevated”
- AUD/USD advances 0.8% to 0.6989 after tumbling 1.6% on Friday: “AUD led a mild improvement in pro-growth G-10 pairs, but with the US out on holidays and hawkish Fed rhetoric over the weekend, AUD remains vulnerable in a still uncertain market,” says Rodrigo Catril, a foreign-exchange strategist at National Australia Bank.
- USD/JPY falls 0.1% to 134.88: Prime Minister Fumio Kishida said that BOJ Governor Haruhiko Kuroda expressed his concern over currency movements during a meeting, a comment that briefly strengthened the yen on Monday.
In commodities, crude futures are quiet with WTI near $109.80. Most base metals trade in the red; LME tin falls 1.7%, underperforming peers. Spot gold is little changed at $1,841/oz.
There is nothing on today's calendar since US markets are close for national holiday.