LIVE MARKETS Siding Bill and Home Builders
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COVERING BILL AND HOMEBUILDERS (12:30 GMT)
UK homebuilders have come under pressure after the government ordered companies to pay to remove flammable materials from buildings.
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The FTSE 350 home goods and homebuilders index (.FTNMX402020) has fallen around 15% since the UK government gave them a $5 billion bill to remove the coating on January 10. Learn more
“The market is pricing in the extent to which the majority of this cost will be covered by major publicly listed UK homebuilders,” UBS says.
“We believe that an indefinite profits tax to recoup the estimated £4billion cost (or its residual) of remedying buildings 11-18 meters high from house builders is only worthwhile. no use for
shares,” says the Swiss bank.
He cited a letter from the Federation of Home Builders “questioning the proportionality and fairness of the approach taken so far”.
ITALIAN SOVEREIGN STRESS: THE FTSE MIB KNOWS HOW TO MANAGE! (11:36 GMT)
Italian asset traders were almost panicked yesterday when pressure on sovereign bonds and equities quickly mounted on jitters over a faster policy tightening after last week’s hawkish pivot at the European Central Bank.
About 24 hours later, stress levels appear to be returning to normal, helped by ECB President Christine Lagarde’s return to damage limitation mode and as investors take a more balanced view of what the rising yields means for Italy highly indebted.
Take Goldman Sachs, which thinks wider sovereign spreads are manageable and doesn’t expect Italian equities to underperform.
“The FTSE MIB is already trading at a substantial discount to Europe. Indeed, the discount is about the same as in 2012, when Italian spreads exceeded 400 basis points. modest spread widening as particularly worrisome,” they said.
STOXX UP, BANKS AND ENERGY BEAK NEW GROUND (0846 GMT)
European equities got off to a positive start as it appears investors have put aside concerns about a more rapid ECB policy tightening to focus on sectors that stand to benefit the most from an economic recovery and earnings In progress.
It’s no wonder, then, that banks and energy are innovating, increasing first trades to their highest levels since August 2018 and January 2020 respectively, while miners are seeing strong demand, up more than 2%.
Tech is lagging the uptrend following losses on the tech-heavy Nasdaq and rising rates putting pressure on expensive valuations. Stay-at-home names are also generally weaker with Ocado down 9% after the online supermarket warned it would miss core 2022 earnings estimates due to more investment.
The well-received results lift ams of oil major BP and sensor maker, but French bank BNP is lagging a positive banking sector as a lack of costs offset strong 2025 targets.
The STOXX 600 equity benchmark index was up 0.7%.
LOOKING FOR THIS ‘BCE PUT’ (0801 GMT)
“Progressive”, “data dependent” – these were the words ECB President Christine Lagarde used to soften the hawkishness of his post last week. But after three days of violent price revisions in euro debt markets, there is likely more to come.
Borrowing costs for the southern flank of Europe increased sharply, investors now demanding a yield premium of 160 basis points to hold Italian 10-year bonds over safer German equivalents. This is 30 basis points higher than before the ECB meeting last Thursday.
European corporate debt could also undergo a correction; Citi estimates that investment grade credit spreads could widen to 90 basis points from 70 basis points at the end of 2021.
Recent moves increase the risk of fragmentation along national lines of debt markets and the derailment of southern Europe’s economic recovery, especially given rising spending shortfalls post-COVID. The question now is: how far can the sale go before decision makers reassure? In other words, the ECB “puts”, in the sense of the safety net that the US Fed is generally considered to provide to stock markets?
The answer? He might still have some time to run. Yields, although rising, are low in absolute terms and Europe still has the safety net of the EU recovery fund. Lagarde promised that “the ECB will ‘obviously react’ if sovereign spreads widen significantly. But as yields resume their ascent on Tuesday, analysts at JPMorgan note that ‘the market may be willing to test that commitment.’
Elsewhere, Softbank’s deal to sell chip designer Arm in a $60 billion deal has collapsed amid regulatory hurdles. It comes days after a $5 billion purchase by Taiwan’s GlobalWafers (6488.TWO) of Germany’s Siltronic was scuppered by Berlin.
Key developments that should further guide markets on Tuesday:
– UK consumers slowed the pace of spending last month Read more
-BNP in France beats fourth quarter profit estimates, BP posts highest profit in eight years in 2021 Read more
– New York Fed Releases Fourth Quarter Household Debt and Credit Report
-American trade balance
– Auction of US 3-year bonds
– US profits: Coty, DuPont, Harley Davidson, Thomson Reuters, Pfizer, S&P Global, Omnicom, Chipotle, Lyft, Peloton
-European results: Qiagen, Banco BPM, Evolution Gaming, BP, Ocado, BNP Paribas, TUI
– Central banks of emerging markets: Poland. Moldova
EUROPE: IN SEARCH OF DIRECTION (0742 GMT)
European stocks are set to open with no clear direction following late losses on Wall Street, where Facebook owner Meta added to last week’s record slump, and after jitters over rate hikes in the euro zone caused a liquidation of the Italian debt.
Futures on the Euro STOXX 50 index were flat and contracts on the FTSE 100, which is focused on commodity stocks, added 0.2%, supported by positive earnings updates.
BP posted its highest profit in eight years, holiday company TUI was optimistic about its outlook, saying summer travel bookings were steadily approaching pre-COVID levels, while AMS exceeded revenue and margin estimates.
In Asia, stocks reversed early gains as investors fretted over the prospect of the US government adding 33 more Chinese entities to its export control list. Meanwhile, US equity index futures were little changed. Read more
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