LIVE MARKETS-Slowing shorting activity could signal bottom is near
STOXX up 1.5%
STOXX up 1.5%
UK unemployment falls to lowest since 1974
KKR offer boosts ContourGlobal
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SLOWING SHORTING ACTIVITY COULD SIGNAL BOTTOM IS NEAR (1108 GMT)
Short exposure in U.S. domestic stocks dropped dramatically this year to $840 million from over $1.07 trillion at the end of 2021, according to analytics firm S3 Partners, alongside a slump in stock market.
“Shorts were no longer selling into weakness but were instead trimming their exposure slightly — possibly a signal that we are nearing a bottom to the recent market price weakness,” said S3 Partners managing director Ihor Dusaniwsky.
Short sellers continue to outperform the U.S. markets in 2022, mark-to market profits now at $215.6 billion in 2022, of which $144.1 billion was earned in the last 30 days alone.
The S&P 500 was on track for its worst start to the year in decades and has lost nearly 10% of its value over the past month, roiled by concerns over surging prices and a sharp rise in borrowing costs.
S3 names Tesla Inc (TSLA.O) , Amazon.com Inc (AMZN.O) , Apple Inc (AAPL.O) and Block Inc (SQ.N) among top most profitable shorts this year, while Alphabet Inc (GOOGL.O) , Netflix Inc
(NFLX.O) , Baker Huges (BKR.N) were the ones with the highest increase in short positions.
(Medha Singh)
INVESTORS NOW WANT CEOS TO IMPROVE BALANCE SHEETS (1042 GMT)
The current risk-averse mindset is starting to feed into investors’ attitude towards actions by company executives.
That’s one interesting finding of the latest BofA fund manager survey according to which large fund managers now want CEOs to focus more on bolstering balance sheets rather than spending on capex or buying back shares.
The share of investors wanting CEOs to boost balance sheets - repay debt, address pension liabilities - now stands at 41%, the highest since January 2021 and up from 34% last month.
At the same time, investors wanting company bosses to spend on buybacks fell to 18% from 20%, while those seeking a capex increase declined to the lowest since October 2020 at 34%.
(Danilo Masoni)
IS THE MULTIPLE COMPRESSION OVER? (0918 GMT)
Berenberg doesn’t think so and even though global equities have already seen a big de-rating from the multi-year peaks hit in 2020, they still see downside risks for valuation multiples.
“The sharp equity de-rating has made shares look more attractive on a valuation basis, with Japan and the UK looking better placed than the U.S. and Europe. But valuation at current levels is not compelling on a standalone basis ahead of likely risks to macro and corporate data,” say strategists at the German investment bank.
“Ahead of weaker data and in the absence of strong conviction – with extending uncertainty via inflation, the Russia Ukraine conflict and COVID-19 politics – this means that we continue to see near term risks skewed to the downside and continue to favour ‘active hedging’ strategies,” they added.
According to Berenberg, global equity markets appear to be pricing in a “soft landing success” but to reach “distressed” levels they would need to fall by another 14%.
(Danilo Masoni)
IMPROVED SENTIMENT, KKR OFFER LIFT EUROPEAN STOCKS (0740 GMT)
Improved market sentiment and an offer by U.S. private equity firm KKR to buy power generation company ContourGlobal lift European stocks.
The pan European STOXX 600 (.STOXX) is up 1%, to a 12-day high, with risk sensitive travel and leisure index (.SXTP) leading the gains, up more than 2%.
Oil and gas (.SXEP) and tech (.SX8P) are also performing nicely, supported by headlines from China, which bolstered market sentiment.
In terms of single stocks, the best perfomer is London-listed ContourGlobal (GLO.L) .
Its shares leapt by a third after the 1.75 billion pound ($2.16 billion) KKR (KKR.N) bid. The buyout firm is seeking to expand its renewable energy portfolio.
(Joice Alves)
APOCALYPSE NOW? (0653 GMT)
Bank of England boss Andrew Bailey is sorry for an “apocalyptic” view of the world, saying that monetary policy faces its biggest test in 25 years with surging inflation exacerbated by war in Ukraine and China’s COVID lockdowns.
Federal Reserve chief Jerome Powell, who warned last week that taming inflation will “include some pain”, and European Central Bank president Christine Lagarde speak later on Tuesday.
No wonder markets are so volatile – swinging one way one minute on a view that surging inflation will bring aggressive rate hikes in major economies to swinging the other way the next on fears that all this inevitably raises recession risks.
A heavy hint from Australia’s central bank that another rate hike is coming in June is lifting the Aussie dollar today.
But in general, it’s that growing fear of recession risk - heightened by Monday’s gloomy China data - that holds sway. U.S. 10-year Treasury yields are down almost 30 basis points from 3-1⁄2 year highs hit just over a week ago.
For now stocks markets are stable. Yet, first quarter euro zone GDP numbers, U.S. retail sales and industrial production data later pose a new test for fragile sentiment.
Economists polled by Reuters forecast retail sales rose 0.9% in April versus a 0.5% gain a month earlier.
Data out early on Tuesday shows Britain’s unemployment rate fell to its lowest since 1974 at 3.7% in the first three months of this year, which could bring some comfort to policymakers.
Finally, while sentiment is largely risk off, commodity prices continue to surge – wheat futures and other agricultural goods prices shot up on Monday. No doubt, there’s no shortage of sources of angst right now.
Key developments that should provide more direction to markets on Tuesday:
ECB to hike deposit rate 25 bps in July, ditch negative rates by end-Sept - Poll
Musk suggests that he could seek to cut price for Twitter buy
Australia central bank minutes hint at June hike
UK unemployment/wage growth
ECB board member Andrea Enria, ECB president Christine Lagarde
Fed speakers: Cleveland President Loretta Mester, Philadelphia President Patrick Harker, Chicago President Charles Evans
U.S. retail sales/industrial output/ inventories
Earnings, Europe: Daimler, Vodafone, Imperial Brands, Land securities. U.S.: Home Depot, Wal-Mart, Macy’s
(Dhara Ranasinghe)
EUROPEAN FUTURES JUMP (0635 GMT)
European futures are pointing to a strong start of the day for European bourses, following a tech-led rebound across Asian shares and overall improved market sentiment.
Market mood improved as Shanghai had three straight days with no new COVID-19 cases outside quarantine zones, raising hopes COVID-19 restrictions will be lifted.
Hong-Kong listed tech companies (.HSI) (.HSTECH) jumped more than 4% on hopes China’s crackdown on the sector will be relaxed.
In Europe, data showed Britain’s unemployment rate fell to its lowest since 1974 at 3.7% in the first three months of this year, official figures showed on Tuesday, below economists’ forecasts for it to hold steady at 3.8%.
Investors will be watching a slew of economic data due today, including job numbers and GDP for the euro zone.
(Joice Alves)
US retail sales here PE here bofa survey here