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06/04/22 Briefing

Major European indices are noticeably lower, drafting off Wall Street's weak showing on Tuesday and recoiling on recession worries driven by high inflation rates. The ECB's Chief Economist Lane, though, still expects inflation to peak in the middle of this year, albeit with a caveat that a lot still depends on what happens in Ukraine. ECB member Wunsch, meanwhile, sees a possibility of the Deposit Rate hitting 0.00% by end of year (versus -0.50% currently). German factory orders were much weaker than expected in February and added to the negative investor sentiment. Separately, reports suggest more sanctions for Russia will be forthcoming.

  • In economic data:

    • Eurozone's February PPI +1.1% m/m (expected +1.3%; prior +5.1%) and +31.4% yr/yr (expected +31.5%; prior +30.6%)

    • Germany's February Factory Orders -2.2% m/m (expected -0.2%; prior +2.3%); March IHS Markit Construction PMI 50.9 (prior 54.9)

    • UK's March Construction PMI 59.1 (expected 57.8; prior 59.1)

    • Spain's Consumer Confidence 53.8 (prior 89.8)

---Equity Markets---

  • STOXX Europe 600: -1.4%

  • Germany's DAX: -1.8%

  • U.K.'s FTSE 100: -0.4%

  • France's CAC 40: -1.8%

  • Italy's FTSE MIB: -2.0%

  • Spain's IBEX 35: -1.6%


  • EUR/USD: +0.1% to 1.0909

  • GBP/USD: +0.1% to 1.3074

  • USD/CHF: +0.4% to 0.9333

The stock market has picked up where it left off yesterday, succumbing to selling pressure that has been catalyzed by rising interest rates and growing concerns about a slowdown, if not an eventual contraction, in economic growth. Notably, the CBOE Volatility Index is up 17.2% to 24.64.

Additionally, the S&P 500 is feeling the technical weight of sliding below its 200-day moving average (4490) and little effort thus far to get back above it.

The mega-cap stocks, which have been among the biggest winners during the recovery off the March lows, are among the biggest losers today and that is having a disproportionate impact on the major indices. The Vanguard Mega-Cap Growth ETF (MGK) is down 2.5%.

Overall, though, there is plenty of weakness to be found. Decliners favor advancers by a 3-to-1 margin at the NYSE and a 4-to-1 margin at the Nasdaq.

The energy sector (+1.4%) is the winning standout today, aided by a 4.8% increase in natural gas futures; otherwise, there is a defensive orientation seen in the relative strength of the utilities (+0.5%), consumer staples (+0.4%), real estate (+0.5%), and health care (+0.1%) sectors.

The consumer discretionary (-2.7%), information technology (-2.4%), and communication services (-1.8%) sectors are the worst performers, which is key since they are among the most heavily-weighted sectors in the market.

The 10-yr note yield, which spiked 14 basis points yesterday to 2.55%, is up another seven basis points to 2.62% after hitting 2.65% in overnight action. Weakness persists in front of the 2:00 p.m. ETrelease of the FOMC Minutes for the March meeting, which many think will convey a wider agreement on the part of Fed officials to get more aggressive in removing policy accommodation.

The Dow Jones Industrial Average is down 0.7%; the S&P 500 is down 1.2%; the Russell 2000 is down 1.6%; and the Nasdaq Composite is down 2.1%.

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