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STOXX down 0.4%, volatility hits 1-mo high
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Caution ahead of central bank meetings
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CHR Hansen rallies on Novozymes merger
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U.S. stock index futures inch higher
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WHAT TO PREFER IN 2023: EUROPE OR AMERICA? (1043 GMT)
With European stocks heading into 2023 at a near-record discount to their Wall Street peers, the evergreen question of which market will beat the other looks more alive than ever.
Bernstein is betting on the Old World.
It believes investors should tactically overweight the region versus the U.S., principally based on expectations of a bigger potential of multiple expansion in Europe.
"If one assumes a benign scenario where inflation has peaked and that central banks remain careful but don't get much more hawkish, and that the energy crisis does not worsen from here, our view is that Europe is in a better position for multiple expansion," say Bernstein's Sarah McCarthy and Mark Diver.
According to Bernstein, Europe and the U.S. should both see further earnings cuts. But as markets typically bottom out a couple of months before earning cuts do, this should set the scene for recovery.
Add to that a higher rate environment, which tends to be tougher for growth-oriented regions like the U.S., and the extremely depressed sentiment around Europe, then Bernstein's case for Europe is clear.
Europe has seen outflows since 2016, whereas the U.S. has received strong inflows since end-2020, Bernstein says. In 2022 alone, investors have pulled out $100 billion from European equity funds and poured over $200 billion into the U.S..
According to Refinitiv Datastream, the MSCI Europe index trades at near record PE discount of 33.6% relative to the MSCI USA. That is well below the 5-year average discount of 23.7%.
And in in term of price perfomance, MSCI Europe trades just above the record low relative the MSCI USA hit in September.
VOLATILITY PICKS UP, STOXX DIPS (0906 GMT)
Caution over a flurry of fresh rate hikes this week, which will tighten financial conditions even further, was tangible in early trading in Europe with a gauge of equity volatility hitting a one-month high as the STOXX 600 benchmark slid.
The pan-European index was last down 0.7%, partly reversing Friday's gains, and the euro volatility index, a local equivalent of Wall Street's so-called fear gauge VIX , approached 23 points and hit its highest since Nov. 10. Most STOXX sectors were in the red, led by rate-sensitive real estate, down more than 2%.
Deal-making gave fuel to the biggest stock movers. CHR Hansen soared 36% at one point after the Danish food ingredients and enzymes maker was valued at a premium in a merger deal with peer with Novozymes.
London Stock Exchange was the second biggest gainer on the STOXX, up around 4%, following a cloud deal with Microsoft that saw the U.S. tech group taking a stake in the UK bourse operator.
Momentum continued for aerodefence plays set to benefit from higher military spending. A sectoral gauge surged to its highest since February 2020, up 0.8% to defy the broader weakness. Here is your opening snapshot:
EUROPE SEEN WEAKER AS MORE RATE HIKES LOOM (0740 GMT)
European shares are set to kick off a macro-packed week on the back foot, tracking Friday's late losses on Wall Street and weakness earlier in Asia, where spreading COVID cases in China added to the downbeat mood.
EuroSTOXX50, DAX and FTSE futures fell between 0.3 and 0.5%, while the MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.3%. U.S. futures meanwhile pointed to softer start on Wall Street.
On the European corporate news front, shares in London Stock Exchange will be in focus after Microsoft agreed to take 4% in the UK exchange operator as part of deal to migrate the bourse operator's data platform into the cloud.
Eyes also on Sanofi after the French health group dropped plans to bid for Horizon Therapeutics, while in Italy, Tod's founder ditched plans to delist the shoemaker after a buy-out that didn't meet a key threshold.
Still in M&A, Superdry is another one to watch after the Sunday Times reported CEO and founder Julian Dunkerton has held talks with private equity firms about a possible buyout.
HUNKERING DOWN (0659 GMT)
Just as China faces a testing time over its dramatic COVID-19 policy pivot, financial markets are on full alert ahead of interest rate decisions coming out this week from the world's top central banks.
Initial market enthusiasm over China's easing of its stringent "zero-COVID" measures has now switched to worries over a wave of infections likely disrupting the economy.
European stock markets are set for a weaker start on Monday, dragged by declines in Asian stocks, with the spotlight on a series of central bank meetings even as expectations rise that euro zone inflation is peaking.
The European Central Bank is set to take its deposit rate up by 50 basis points to 2%, despite the euro zone economy almost certainly being in recession, as it battles inflation running at five times its target, a Reuters poll found.
It's a Super Thursday this week, with the ECB, Bank of England, and the Swiss and Norwegian central banks also expected to jack up borrowing costs. What markets are keen to find out is whether they are nearly done.
On Sunday, U.S. Treasury Secretary Janet Yellen forecast a substantial reduction in U.S. inflation in 2023, barring an unexpected shock.
Whether inflation is responding to the most aggressive Fed hiking cycle since the 1980s will be evident in this week's U.S. consumer price index report. On the corporate front, while French health group Sanofi announced it had dropped its bid for biotech company Horizon Therapeutics, the Wall Street Journal reported that Amgen is in advanced talks to buy Horizon.
Meanwhile, a consolidation is shaping up in the food delivery market as Turkish delivery company Getir bought German rival Gorillas in a deal worth $1.2 billion, merging two of the remaining companies in Europe promising groceries in minutes.
Key developments that could influence markets on Monday:
Economic data: UK October GDP and industrial output