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LIVE MARKETS-FTSE 100 for the win... again?

Reuters · 01/06/2023 07:39
LIVE MARKETS-FTSE 100 for the win... again?

Bank holiday in Italy, Spain, Sweden

European shares set for biggest weekly gains since November

Traders awaiting U.S. -farm payrolls data

Euro zone inflation falls more than expected

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FTSE 100 FOR THE WIN... AGAIN? (1238 GMT)

As a year of many unknowns loom ahead for markets, the UK's FTSE 100 may still look well positioned to demonstrate resiliency in the face of global headwinds.

Firms listed on the large cap FTSE .FTSE, bob up and down to the tempo of global volatility which serves as a relatively stronger bulwark against the double-digit inflation ridden UK economy.

Investors have forgotten that while the year gone by saw global equities hit by macroeconomic uncertainty, the FTSE 100 fared better, ending 0.9% higher.

Well its just because it is an outward looking index, but also because these businesses raised equity during the pandemic and so are well prepared to enter the year from a position of strength, say Ben Russon and Richard Bullas, research analysts at the Franklin Templeton Group.

Moreover, with a forward P/E ratio of around 10x – 20% below its 15-year median, UK equities look cheap compared to U.S. equities that are trading on a forward P/E ratio of around 18x – 12% above its 15-year median, the analysts add.

Worried about consistency? Russon and Bullas, believe that parking your cash in companies on the benchmark bourse would be a reliable source of dividend income for traders in 2023 who are worried about the G7 economy tipping into a recession phase.

"Should investors know what steps to take , then in our mind the of being "paid to wait" is an attractive concept," the research analysts wrote in a .


(Johann M Cherian)

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ALL HAIL KING DATA (1220 GMT)

Fed officials say they're going to hike rates to more than 5% and leave them there. Traders, frankly, don't believe them, and expect cuts this year.

That means data - such as Friday's -farm payrolls, due at 1330 GMT - will decide who wins the tug of war.

"If the labour market remains tight... then the Fed is going to be right and the market is going to have to capitulate," says Jane Foley of Rabobank.

"If, on the other hand, the economy and the labour market in particular does loosen a bit faster, then the market is going to carry on believing that they could get the interest rate cuts."

Investors are even paying attention to inflation data in Japan for the first time in many years, as the Bank of Japan considers exiting its ultra-loose monetary policy.

"You to be basing your trading decisions largely on headlines," says James Malcolm, head of FX strategy at UBS.

"Things like the wage ... the Tokyo CPI print week, obviously the BOJ decision on the 18th. These are the kinds of data points which are relevant."


(Harry Robertson)

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BOND YIELDS MISDIRECTION (1028 GMT)

Bund yields lost as much as 30 basis points in three sessions, before yesterday’s slight increase, but optimism over fading inflation might be misplaced.

Both risky stocks and safe-haven bonds benefitted from hopes that central banks will have an easier job tackling inflation and could tighten less their monetary policy.

However, there are market participants who beg to differ.

“We think the mostly energy-related drop in inflation in December is a red herring,” ING analysts said. “Whilst helpful at the margin, we think core inflation should be a better predictor of European Central Bank policy.”

“This drop in yields has been as sudden and relentless as the rise into year-end,” they added. “Swaption implied volatility is down since its September peak but there are signs so far that 2023 will prove a calmer year.”

“One-offs like the German gas payment, as well as slumping French petrol prices have driven the CPI surprises, but look set to reverse again in January,” says Michael Leister, head of rates & credit research at Commerzbank.

“In addition, core inflation rates - which the ECB keeps on stressing are key - remain elevated, reducing the odds for less hawkish official communication,” he adds.


(Stefano Rebaudo)

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STOXX SET FOR BIGGEST WEEKLY GAIN IN 2 MONTHS (0845 GMT)

The pan European STOXX 600 .STOXX index started the year with a bang and is set for its best weekly gain since mid-November, having risen more than 3%. The index was treading water on Friday, however, ahead of data on euro zone inflation and U.S. jobs.

Euro zone inflation figures are due at 1000 GMT.

In thin trading due to bank holidays in some European countries including Italy, Spain and Sweden, the STOXX 600 was little changed on Friday. The oil and gas sector .SXEP was up 0.6%, supported by Shell's SHEL.L shares.

Europe's largest oil and gas company reported earnings from its liquefied gas trading operations are likely to have been significantly higher in the fourth quarter of last year despite a sharp output drop owing to plant outages.

In the UK, Clarkson CKN.L shares rose around 6% after the company's upbeat full year outlook.



(Joice Alves)

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RELENTLESS (0859 GMT)

Not yet the end of the first trading week of the year and festivity is giving way to familiar tension.

Ukraine has rejected Russia's order for a ceasefire over Orthodox Christmas as a trick. No compromise is forthcoming, either, on Capitol Hill, with 11 failed attempts at installing Kevin McCarthy as House speaker underscoring dysfunction there.

The Fed is at loggerheads with markets betting on rate cuts by the end of the year, and Asia's bullishness about a recovery in China is increasingly at odds with global sentiment.

The MSCI Asia ex-Japan index .MIAPJ0000PUS hit a four-month high on Friday, while Wall Street indexes test recent lows. The dollar is refusing to fall.

European inflation data on Friday can set the stage for U.S. jobs data due later in the day as the figures can offer the latest state-of-play for consumer prices and the economy.

A bigger-than-expected drop in the speed of German consumer price rises unleashed a bond rally across Europe earlier this week. But only small declines are forecast.

The U.S. economy likely maintained a solid pace of job and wage growth in December, and that could again stymie bets that an end to rate rises is coming anytime soon.


Key developments that could influence markets on Friday:

- U.S. -farm payrolls (December)

- Fed's Cook, Bostic, Barkin and George all speak

- Euro zone flash inflation (December)


(Tom Westbrook)

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EUROPEAN SHARES SEEN HIGHER AHEAD OF EURO ZONE INFLATION, U.S. JOB DATA (0750 GMT)

European futures point to a start of the day in positive territory for bourses across the region as traders braced for today’s release of December euro zone inflation and U.S. jobs data for clues on how aggressive central banks will be in tightening policy.

The euro zone flash inflation estimate is expected to have slipped below 10%, writes Ipek Ozkardeskaya at Swissquote. "A softer European inflation could soften the ECB hawks, but it will hardly change the ECB’s determination to further tighten its policy for ".

In the U.S., -farm payrolls are forecast to show on Friday that 200,000 jobs were created in December, easing from November's 263,000 pace, according to a Reuters survey of economists.

(Joice Alves)

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