Financial basis

MARKETS LIVE Value outpaces growth in biggest gap in nearly 2 decades

  • STOXX 600 down 1.5%
  • Third consecutive weekly defeat in sight
  • Tech, miners, worst-performing automobiles
  • Wall Street futures in the red

January 21 – Welcome home to real-time market coverage from Reuters reporters. You can share your thoughts with us at [email protected]

VALUE BEAT GROWTH IN BIGGEST GAP IN NEARLY 2 DECADES (1230 GMT)

Year-to-date, European value stocks have risen 4.4%, while growth stocks have fallen 5.7%. The 11% performance gap between the MSCI Europe Value and Growth is the largest in 19 years.

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Value of Europe vs Growth

The 2022 rotation, which surprised many with its speed, is clearly not making up for 15 years of underperformance in the stock, Barclays analysts say.

Still, depending on how earnings develop, according to notes from the UK investment bank, value stocks could still show moderate growth.

In the meantime, as a growing number of central banks, including the Fed and the BoE, move to tighten liquidity, growth stocks – such as technology, luxury and retail – “seem vulnerable given how much they have benefited from QE and in some cases exhibited bubble characteristics,” Barclays analysts add.

“We are not calling for a global revaluation of value sectors at higher multiples,” they say, but “if we see a further rise in real rates, it would certainly put more pressure on still-high growth valuations. “.

(Joice Alves)

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A DISRUPTIVE FED? (11:41 GMT)

The Federal Reserve rate cycle has been a hot topic lately and will likely be for the whole year.

But the big unknown is whether and to what extent its action will disrupt already stressed financial markets.

According to George Saravelos, global head of forex at Deutsche Bank, “this is the first Fed hike cycle in three decades where the central bank will start raising rates with inflation above rather than below. the goal”.

“The current environment therefore cannot be compared to previous cycles of benign tightening” because at the time “the objective function of the Fed was to achieve neutrality with a minimal impact on the markets or simply it was not not necessary,” he said.

“This time around, the Fed’s objective should be to disrupt the market and ultimately lower inflation: that’s by definition a late-cycle position to be in,” adds he.

Bottom line, “the environment will remain challenging for risk appetite unless and until sufficient financial conditions are met.”

(Stefano Rebaudo)

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SHORT SALES HIGHLIGHTS IN 2021 (11:15 GMT)

A bumper year for U.S. indices meant short sellers were broadly in the red for 2021, but some investors found lucrative trades that lead to generous returns compared to more traditionally short-sold stocks.

According to new research from S3 Partners, short sellers did well recording ‘only’ – $150.5 billion in market value losses on an average balance of $1.14 trillion, down -13.24% for the year.

The most profitable shorts? Alibaba, Block Inc, Peloton, Pinduoduo and Zoom.

Below is S3’s list of the highest-grossing short films of 2021 by dollars:

The highest-grossing short films in 2021

On the other hand, the worst-performing shorts were a mix of FAANG+M stocks, memes, and biotech, as well as Musk’s “biggest perennial short,” Tesla.

Here is S3’s list of the lowest-grossing short films of 2021 by dollars:

The worst-grossing short films of 2021

(Anisha Sircar)

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THE BEARS TAKE CONTROL (08:53 GMT)

The S&P 500 is expected to end the week down nearly 4% in its biggest weekly decline since late 2020.

Fear that the US Federal Reserve may apply the brakes faster than expected to contain persistent inflation continues to dominate global markets.

And Netflix forecasting weak first-quarter subscriber growth after markets closed on Thursday, sending its shares down nearly 20%, doesn’t bode well for the Nasdaq.

After all, the tech-heavy index closed Wednesday more than 10% below its all-time high in November, confirming that it was in the midst of a correction.

Add to that geopolitical risk, with tensions escalating around Ukraine, and it’s not hard to see why the bears are pulling their claws out this morning.

Back to inflation for a minute: Friday’s data shows even Japanese inflation rose 0.5% in December from a year earlier, rising for a second fastest-paced month in nearly two years, a sign of growing inflationary pressure due to the rise in fuel and fresh raw materials. Read more

US Treasury Secretary Janet Yellen said Thursday she was confident the Fed and the Biden administration would take the necessary steps to bring inflation down in 2022.

Sovereign bonds are a market that does not feel the anxiety of inflation. The yield on the German Bund fell back below 0% and US Treasury yields fell 5 basis points early in London. After all, investors need a safe place to hide from the carnage elsewhere.

Key developments that should further guide markets on Friday:

– Top diplomats from the United States and Russia meet in Geneva on rising tensions in Ukraine Read more

— Rio Tinto shares plunge as Serbia winds down its $2.4 billion lithium project

– UK retail sales slump in December after first Christmas shopping, Omicron spread read more

– Eurozone flash consumer confidence

– ECB President Christine Lagarde speaks in Davos

– ECB banking supervisor Edouard Fernandez-Bollo

– Catherine Mann of the Bank of England speaks

– Emerging markets: Pakistan, Kazakhstan

– US Profits: Schlumberger

(Dhara Ranasinghe)

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MORNING HIT CANCEL WEEKLY STOXX 600 GAINS (0815 GMT)

European stocks were forecast for a meager 0.5% gain for the week, but that turned into a loss when the opening bell rang on the trading floors.

The STOXX 600 is down 1.5%, meaning it is now heading for a third consecutive weekly loss.

Although the overall decline is not massive, only a tiny fraction of companies listed on the pan-European index are in positive territory this morning.

Market stress is quite visible for European tech which trails the Nasdaq lower with a 2.5% decline.

Like Wall Street’s technology index, the European sector is moving into correction territory, with the index at 741 points, around 12% below the 850 point mark it broke in November.

The European tech index is also breaking below the major moving averages, indicating that it could be even more painful in the coming weeks.

In this regard, last night’s Netflix results are on the minds of many traders, as some fear that they are some sort of spoiler for earnings season.

Ipek Ozkardeskaya, an analyst at Swissquote, noted that the tech sector really needs to post very strong earnings amid growing anxiety over the Fed’s 50 basis point rate hike.

“The real price of Big Tech reflects fantastic earnings growth for the next few quarters, and investors will settle for nothing less than fireworks,” she wrote in a note.

Speaking of the Fed, commodities are really under pressure with prices falling in anticipation of the tightening cycle.

Miners are the worst performers on all exchanges with the index down 2.8% and set for its worst daily performance since November.

Speaking of the biggest losers today, Siemens Gamesa loses 9% as it promises improved turbine prices after cutting the outlook.

(Julien Ponthus)

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EUROPE ATTACKS FOR A WAVE OF RED (0705 GMT)

European stock markets are expected to get off to a rough start this morning, with futures pointing to losses of more than 1% following a massive sell-off that spread from Wall Street to Asian stock exchanges overnight.

Tech and growth stocks are at the center of the selling spree as investors wary of the Fed’s upcoming moves to tackle inflation, which has proven to be much less transitory than policymakers had hoped there. only a few months old.

The future of European blue chips listed on the EURO STOXX 50 lost 1.6% and Nasdaq futures are down around 1%.

(Julien Ponthus)

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