EUROPEAN MIDI BULLETIN – Inventories drop, drop in mining and oil stocks



European equities mostly fell as mining and oil stocks fell, although the CAC 40 rose after the first round of French presidential elections.

In Europe, France’s CAC 40 was an outlier, up 0.4% after President Emmanuel Macron garnered 28.2% of the estimated vote in the first round of the presidential election, ahead of 22.9% far-right leader Marine Le Pen. The two will face off in a rematch on April 24 of the 2017 election.

Ms Le Pen has toned down her criticism of the eurozone, but her lead in the polls has further sown jitters in European markets in recent weeks. The euro traded around the level on Monday at $1.0912. The yield on 10-year French government bonds rose to 1.297% from 1.257% on Friday.

Meanwhile, stocks in China fell as the economic toll from Covid-19 lockdowns in Shanghai and supply chain disruptions in the country continued to worsen.

“The resurgence of the pandemic is the main reason,” said Bruce Pang, head of macro-strategy research for China Renaissance Securities. He said investors were hoping for action from Beijing to help counter the effects of the slowdown.

Auto sales data in China showed Monday that passenger car sales fell 10.5% in March after production was hampered by factory shutdowns. Shanghai, the center of the Covid-19 outbreak, reported more than 25,000 asymptomatic carriers of the coronavirus on Sunday, according to the National Health Commission.

Shares in motion:

Vodafone Group shares topped the FTSE 100 rises, rising 1.8% after reports claimed TalkTalk had appointed advisers to sound out potential interest in a potential £3billion sale of the private broadband, telephony and television provider.

“News reports indicate that an informal offer to buy all or part of TalkTalk has been considered by Vodafone, Sky and others,” Goldman Sachs analysts said.

“If true, while an acquisition by a financial bidder would not change market dynamics, a transaction with Vodafone and Sky would provide a pathway to a more consolidated UK fixed line/broadband market, which would likely increase yields.

We consider such a transaction to be clearly positive for Liberty Global and Telefonica, likely positive for BT and mixed for Vodafone,” GS said.

Continued demand curbs in China are expected to affect Puma’s sales in Q2 as well as Q1, but the longer-term view remains positive, Deutsche Bank said.

The German sporting goods company will report its first quarter results later this month and is expected to bear the slight impact of further lockdowns in China and the Russia-Ukraine crisis, Deutsche said.

Further near-term weakness in China means Q2 sales will also be lower than previously forecast, he added. But there is no change in the underlying positive outlook, with operating profit likely weaker for the full year, still in line with the company’s guidance range, Deutsche said. . The bank maintains a buy rating on Puma shares, reducing the target price to 120 euros.

Societe Generale’s agreement to sell its Russian subsidiary should be a relief for shareholders, say analysts at Keefe, Bruyette & Woods.

The capital affected by the sale will be limited to 20 basis points, while the French lender had previously warned that it would be hit by around 50 basis points if it lost control of its Russian assets, KBW said.

The sale leaves SocGen with 3.2 billion euros of Russia-related exposures outside the country, which still presents some risk, but overall the news should be received positively by the market, said KBW.

SocGen also confirmed its capital return policy for 2021. “While we previously assumed this would be the case, this view was not widely shared,” KBW said. SocGen traded up 5.1%.

Actions to watch:

Beiersdorf’s year got off to a good start, with first-quarter sales beating consensus led by the consumer division, UBS said.

However, despite expectations of an upgrade, the German manufacturing company reiterated its forecast for organic sales growth for its consumer division, which led the shares to underperform the broader European food sector. and health and personal care, according to the bank.

The company also pointed to several areas of uncertainty such as the war in Ukraine, lockdowns in China and inflationary pressure on raw materials and logistics costs, UBS said.

According to the bank, Beiersdorf is expected to face downside risks from lockdowns and additional inflationary pressures, which could affect its gross margin development. Beiersdorf traded down 2% to EUR 95.00.

Data in the spotlight:

Economic growth in the UK is expected to be weak for several months and may even contract in 2Q, Pantheon Macroeconomics said.

The economic research firm expects GDP to fall by 0.3% quarter on quarter between April and June, reflecting a drop in production in the health sector and an additional public holiday in June.

In addition, a sharp decline in real household disposable income due to the cost of living crisis will likely put a halt to the recovery in real household spending, Pantheon said.

“Given this weak near-term outlook for GDP growth, we continue to believe that the [Bank of England’s] The monetary policy committee will stop raising the Bank Rate after raising it to 1.0% next month,” he said.

Market overview:

Analysts at Danske Bank say they expect the European Central Bank to hike interest rates by a quarter, expecting a first hike in September and another in December, each by 25 basis points.

The revised forecast follows recent comments from members of the ECB’s Governing Council, hawkish minutes and inflation surprises, said Piet Haines Christiansen, Danske’s chief fixed income research strategist at the ECB and the EUR.

Beyond 2022, Christiansen does not expect a prolonged cycle of rising interest rates until 2023 as he expects inflation to return to target. In addition, the Fed will also have contributed to a significant tightening of global financing conditions by then, worsening the economic outlook, he said.

French President Emmanuel Macron is well positioned to win another term, but uncertainty surrounding the second round of elections has grown, UniCredit Research said.

“While we believe the chances of Ms. [Marine] Le Pen’s victories are small, and less than the polls imply, the difference in voting intentions between the two candidates is so small that a victory for Ms Le Pen cannot be ruled out,” said the Italian bank.

The two weeks until the April 24 runoff will be critical for candidates to engage their voters through debate and broaden their appeal beyond their base to improve their chances of winning, UniCredit said.

The first round of French elections confirmed the collapse of traditional parties and the rise of protest voting, Barclays said.

“The 2022 presidential election in France marks the second and final step towards a reshuffling of the political landscape,” the bank said.

After the 2017 election, the emergence of Emmanuel Macron, a centrist, liberal and pro-European politician, and the characterization of Marine Le Pen, a far-right leader, nationalist and Eurosceptic, ended the historic domination of the centre- the right-wing Gaullists and centre-left socialists since the start of the Fifth Republic, according to Barclays.

Macron will oppose Le Pen on April 24 and although most opinion polls point to Macron’s likely re-election, Barclays says there is still a lot of uncertainty.

US markets:

Equity futures tumbled as tech stocks were on course to lead losses as China’s Covid-19 shutdowns added to the uncertainty investors face in a period of rising rates of interest.

Ahead of bank earnings and inflation data later in the week, traders focused on the health of the market.

Michael Darda, chief economist and market strategist at MKM Partners, says the S&P 500 is overvalued even with the recent pullback.

He said that for the equity risk premium – the return on earnings minus the return on bonds – to return to its five-year average, one of four things would have to happen: bond yields fall by about 100 basis points, earnings rise about 20%, the stock market falls about 17%, or some combination of the three.

“Our valuation work shows that financials remains the most attractive cyclical sector while healthcare is the most attractive defensive sector. High valuation technology across the cap structure remains in our view to be avoided or short,” Darda said.

In the spotlight this week will be a key reading of US inflation. Tuesday’s release of the consumer price index for March will be the last CPI data the Fed will receive before its next monetary policy meeting.

The start of the first quarter earnings season is also in focus. While only 15 S&P 500 companies will report results, they include major US financial groups JPMorgan Chase and BlackRock on Wednesday, ahead of Citigroup, Morgan Stanley), Goldman Sachs and Wells Fargo on Thursday.


The dollar rose as the Fed appeared poised to tackle soaring inflation with a rapid normalization of monetary policy, ING said.

The market currently expects the Fed to raise interest rates by 250 basis points by the end of the year, ING analysts said. “And at ING, we expect 150 basis points of this tightening to come over the May-July period.”

With uncertainty over the global economy also boosting demand for safe havens, investors are likely to hold on to long dollar positions – bets on the strengthening currency – over the Easter holiday, analysts said.

The euro fell against the dollar after earlier gains in reaction to French President Emmanuel Macron’s victory in the first round of the country’s presidential election.

Rising long-term US Treasury yields and the resulting widening of yield spreads with the rest of the world remain key drivers of renewed dollar strength, along with demand for safe havens due to uncertainty surrounding the Russian-Ukrainian conflict, according to analysts from Unicredit Research mentioned.

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April 11, 2022 06:26 ET (10:26 GMT)

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Steve R. Hansen