Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 25/04/23
Euro area equities hover near 14-month highs
Key Takeaways
Global equity indices rose near 2023 highs in the past week and implied volatility subsided further, as equity multiples are pricing-in a high probability of soft landing for the US economy. The 12-month forward S&P500 Price-to-Earnings ratio has increased by 1.5 points to 18.3x year-to-date.
Quarterly earnings reports have got off to a rather satisfactory start. Indeed, with 89 S&P500 companies having reported results so far for Q1.2023, 76% have surpassed analyst estimates, versus an average “beat rate” of 73% in the past 10 years. So far, reported earnings are +5.8% above estimates, versus a 10-year average “beat rate” of +6.4%. Meta (Facebook), Microsoft, Alphabet (Google), and Amazon are set to release results in the current week.
Government bond yields moved higher in the euro area, due to increased odds of the ECB hiking interest rates by 50 basis points again next month (current DFR: 3%) amid strong core CPI (3-month average annualized monthly rate of +5%) and better-than-expected economic data. So far this month, the 2-Year German Government bond yield has increased by 20 bps to 2.95%, remaining though lower by 40 bps compared with the 15-year high that recorded in early March.
Euro area periphery bond spreads narrowed, with the GGB/Bund 10-Year yield spread down by 15 bps month-to-date to 177 bps. The S&P Global Ratings revised its outlook on Greek public debt to positive from stable, affirming the BB+ rating -- a step away from investment grade status. At the same time, the BTP/Bund 10-Year yield spread has narrowed by 5 bps to 187 bps, as the S&P affirmed the BBB rating for Italian sovereign debt with a stable outlook.
The euro area composite PMI rose by +0.7 pts to 54.4, an eleven-month high and above consensus estimates for a roughly stable outcome. However, PMIs diverged further sector-wise in April, with the difference between the output index in the manufacturing sector (-1.9 pts to 48.5) and its services peer (+1.6 pts to 56.6), reaching the widest level since early-2009. The fulfillment of previously backlogged orders averted a larger fall in manufacturing output.
In the current week, GDP data will further help to gauge the health of the global economy, as well as sectoral trends. The first estimate of US real GDP for Q1.2023 is due on April 27th, with growth expectations of +2.1% quarter-over-quarter annualized rate from +2.6% in Q4.2022. Note that residential investment (3% of US GDP) is expected to contract for the eighth consecutive quarter, as housing market headwinds from, inter alia, higher mortgage interest rates, elevated construction costs and tight bank lending standards continue.
On the other side of the Atlantic, the first estimate of the euro area GDP for Q1:2023 is released on April 28th, with growth expectations of +0.3% quarter-over-quarter annualized rate from -0.2% in Q4.2022. Euro area CPI inflation for April (May 2nd) will also be closely monitored, with headline CPI expected at +6.6% year-over-year from +6.9% in March (core: +5.6% from +5.7%). The CPI announcement is scheduled two days before the ECB Governing Council meeting.
Market pricing now points to roughly additional hikes of +75 bps for euro policy interest rates, from additional hikes of +25 bps four weeks ago -- during the peak of the banking turmoil.
Key Takeaways
Global equity indices rose near 2023 highs in the past week and implied volatility subsided further, as equity multiples are pricing-in a high probability of soft landing for the US economy. The 12-month forward S&P500 Price-to-Earnings ratio has increased by 1.5 points to 18.3x year-to-date.
Quarterly earnings reports have got off to a rather satisfactory start. Indeed, with 89 S&P500 companies having reported results so far for Q1.2023, 76% have surpassed analyst estimates, versus an average “beat rate” of 73% in the past 10 years. So far, reported earnings are +5.8% above estimates, versus a 10-year average “beat rate” of +6.4%. Meta (Facebook), Microsoft, Alphabet (Google), and Amazon are set to release results in the current week.
Government bond yields moved higher in the euro area, due to increased odds of the ECB hiking interest rates by 50 basis points again next month (current DFR: 3%) amid strong core CPI (3-month average annualized monthly rate of +5%) and better-than-expected economic data. So far this month, the 2-Year German Government bond yield has increased by 20 bps to 2.95%, remaining though lower by 40 bps compared with the 15-year high that recorded in early March.
Euro area periphery bond spreads narrowed, with the GGB/Bund 10-Year yield spread down by 15 bps month-to-date to 177 bps. The S&P Global Ratings revised its outlook on Greek public debt to positive from stable, affirming the BB+ rating -- a step away from investment grade status. At the same time, the BTP/Bund 10-Year yield spread has narrowed by 5 bps to 187 bps, as the S&P affirmed the BBB rating for Italian sovereign debt with a stable outlook.
The euro area composite PMI rose by +0.7 pts to 54.4, an eleven-month high and above consensus estimates for a roughly stable outcome. However, PMIs diverged further sector-wise in April, with the difference between the output index in the manufacturing sector (-1.9 pts to 48.5) and its services peer (+1.6 pts to 56.6), reaching the widest level since early-2009. The fulfillment of previously backlogged orders averted a larger fall in manufacturing output.
In the current week, GDP data will further help to gauge the health of the global economy, as well as sectoral trends. The first estimate of US real GDP for Q1.2023 is due on April 27th, with growth expectations of +2.1% quarter-over-quarter annualized rate from +2.6% in Q4.2022. Note that residential investment (3% of US GDP) is expected to contract for the eighth consecutive quarter, as housing market headwinds from, inter alia, higher mortgage interest rates, elevated construction costs and tight bank lending standards continue.
On the other side of the Atlantic, the first estimate of the euro area GDP for Q1:2023 is released on April 28th, with growth expectations of +0.3% quarter-over-quarter annualized rate from -0.2% in Q4.2022. Euro area CPI inflation for April (May 2nd) will also be closely monitored, with headline CPI expected at +6.6% year-over-year from +6.9% in March (core: +5.6% from +5.7%). The CPI announcement is scheduled two days before the ECB Governing Council meeting.
Market pricing now points to roughly additional hikes of +75 bps for euro policy interest rates, from additional hikes of +25 bps four weeks ago -- during the peak of the banking turmoil.