MARKET WRAPS
Stocks:
European stocks edged higher as investors remain focused on developments surrounding Russia's invasion of Ukraine.
Ukraine President Volodymyr Zelensky said his country could declare neutrality and offer security guarantees to Russia as he sought a direct meeting with Russian President Vladimir Putin. Talks between the two sides are due to resume in full in Turkey on Tuesday.
The White House walked back remarks from U.S. President Joe Biden in which he said that Putin cannot remain in power.
Russia's benchmark MOEX index edged down 1.7% Monday in a shortened session as Moscow allowed all Russian shares to trade. Foreigners remain barred from selling shares, helping underpin the benchmark's level.
Shares on the move:
Shares in Ted Baker fell 2.8% after the fashion brand rejected two unsolicited non-binding proposals from Sycamore Partners Management for a possible takeover, saying they "significantly undervalued" the company.
While Ted Baker has had a tough few years and still faces hurdles, its latest trading update shows increased sales, improved margins, a small year-end net cash position and encouraging management comments, AJ Bell said.
"The retailer has been through a prolonged difficult period and was just starting to see the first fruits of its recovery strategy," Bell said.
"Selling out now would mean letting someone else come in and steal all the credit for the turnaround plan."
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Barclays breached regulatory requirements by over-issuing structured notes in the U.S. for around a year, and expects a financial hit of around GBP450 million to rectify its mistake by repurchasing the affected securities, Shore Capital said.
The U.K. bank's financial hit is roughly equivalent to around 2% of Barclays' market cap, and as such the investment group reduces its fair value for Barclays' stock to 290 pence, from 295 pence.
"While this announcement is very unfortunate in its nature, and result in yet further fines and penalties, the overall financial impact is manageable," reiterating its buy recommendation. Shares were down 2.9%.
Stocks to Watch:
Thales has plenty of positives ahead, leaving the French aerospace-and-defense company's shares with further scope to rise, Berenberg said.
Shares have risen sharply year-to-date, but with French defence spending likely to increase, a buyback due soon, and ESG concerns perhaps diminishing, the share still looks "mispriced," Berenberg said.
The brokerage has a buy rating on the stock and EUR141 price target, "which we do not view as stretched for the quality and growth on offer," it adds.
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Dassault Aviation's core business offers further potential upside ahead following recent strong share performance by the French aerospace-and-defense company, Berenberg said.
Shares have risen sharply year to date, but this seems mostly down to its stake in peer Thales and its improving net cash balance, Berenberg said.
Assumptions on the value of the core operating business as such look too low, with good visibility on defense spending and a recovery in business jets, Berenberg argued.
"There is further momentum potential in the shares," the brokerage says, keeping a buy rating and a EUR180 target on the stock.
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Auto Trader's decision to buy Autorama--an online aggregator of car leasing deals--makes sense as the online marketplace for cars looks at new ways to monetize new car transactions, UBS said.
Leasing is likely to gain share, but a lack of new car supply remains a challenge for all retailers, with automakers likely to prioritize direct sales and franchise dealers, UBS said.
"While we expect Ebtda losses to be reduced given deal synergies, we expect Autorama trading to be challenged in the next 12 months," the Swiss bank said. UBS rates the stock neutral, and has a 710 pence target price.
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LVMH should book good sales growth in its first quarter, though investors may be more interested in the macroeconomic environment and the Covid-19 situation in China, Barclays said ahead of the French luxury-goods giant's update next month.
Quarterly sales should rise 15% organically, driven, as usual, by the core fashion & leather-goods division, Barclays forecasts. Focus is nevertheless likely to be on the economy and the China situation, Barclays said.
"More visibility around the evolution of Covid-19 in China and the overall resilience of the feel-good factor in 2Q could be needed in order for LVMH, and the sector, to get back some momentum," the bank notes, keeping an overweight rating and a EUR815 target on the stock.
Market Insight:
Federated Hermes continues to see a bit of a tug of war between risk-off sentiment and inflation worries, with the conflict in Ukraine and the pace of central banks' interest-rate rises remaining key drivers of market performance .
"Although talks between Russia and Ukraine had initially brought some optimism to the market, uncertainty remains elevated on the outcome of these discussions and countries around the world are still very much focused on reducing their reliance on Russian oil and gas."
Economic Insight:
The European Central Bank's intention to withdraw monetary stimulus is likely to administer a double whammy to the economy and consumers, which are already hurt by a decline in real income, UniCredit said.
"The ECB seems blinded by current inflation and the fact that the Fed is tightening, while ignoring the root of European inflation--supply shocks--and the still non-existing wage pressure."
The ECB's strategy seems to be driven more by political reasons to end quantitative easing and negative rates, rather than economics, UniCredit said.
"Having already been hit with the greatest shock in decades to real income and facing unprecedented uncertainties...European policymakers are indicating a withdrawal of stimulus."
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Goldman Sachs said the ECB is set to delay its monetary policy normalization somewhat relative to current guidance as deteriorating confidence points to a shock in demand. However, policy tightening pressures are likely to reemerge quickly once fiscal support is implemented and inflation accelerates further due to renewed damage on supply chains.
"Looking ahead, if these persistent supply dynamics dominate, the ECB may need to raise rates faster." Goldman Sachs expects headline inflation in the eurozone to average 7.8% in 2022, up by 2.8 percentage points since the beginning of the war in Ukraine. Inflation is expected to fall back to around 2% in 2023, Goldman Sachs said.
U.S. Markets:
Stock futures wavered and bond yields rose near their highest level in three years as investors prepared for a campaign of interest-rate increases from the Federal Reserve.
Fed officials have recently signaled openness to the central bank doing half-percentage-point interest rate increases if the economy's outlook calls for it, rather than the more customary quarter-percentage-point changes.
"Market pricing suggests the Fed could do two back-to-back 50 basis-point [interest-rate] hikes at the next two meetings," said Neil Wilson, an analyst at broker Markets.com. "Recent rhetoric from several Fed officials indicate growing support for a more hawkish move."
Higher yields also discount the present value of future cash, putting pressure on tech stocks in particular-because high-growth companies like those in the tech sector have market valuations banking on profits years in the future. In turn, the tech-heavy Nasdaq index was on track to underperform on Monday.
A wave of economic data, including the personal-consumption expenditures (PCE) price index, which is the Fed's preferred measure of inflation, will be in focus in the week ahead. consumer-price index (CPI) data for February, released earlier this month, showed inflation at a four-decade high. A hot PCE reading could further stoke expectations that the Fed will act faster and more aggressively in raising rates.
"Given just how far the Fed is behind the curve it's fair to say that if the post [2008-09 financial crisis] cycle could be erased from people's memory banks, then I think markets might be pricing 300-400 basis points of hikes this year," said Jim Reid, a strategist at Deutsche Bank.
"However the fact that the last decade was so moribund from an activity and inflation point of view means that markets still refuse to believe the Fed can get very far."
Federal-funds futures-derivatives used by traders to bet on the path of interest rates-show that investors have ramped up bets on a 50-basis-point rate increase at the Fed's May meeting since last week.
Forex:
The dollar may rise further if the March U.S. nonfarm payrolls report on Friday bolsters the market's interest rate rise expectations for the Fed, Monex Europe said.
"Should wage growth continue to tick up despite the recent increase in labour supply, money markets are likely to fully price two 50 basis points rate hikes from the Fed in May and June," Monex said.
In that case the dollar will rally broadly across the G10 space, it says. The DXY dollar index rises 0.4%.
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The euro is likely to rise versus the pound but less than previously thought due to the Ukraine war, Bank of America says as it cuts its year-end EUR/GBP forecast to 0.85 from 0.89 previously.
The market continues to attach a high risk premium to holding the euro as it believes the European economy will be hardest hit by the Russia-Ukraine conflict, but BofA analysts are skeptical when it comes to the pound.
"Ultimately...we think the U.K. [fiscal and monetary] policy mix, deteriorating fundamentals and increased pressures in current account financing will all be factors that weigh on GBP."
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The euro looks set to weaken further in the near-term even if data on Friday show eurozone inflation accelerated in March, ING said.
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03-28-22 0646ET
