Sector movers: Cyclicals rally as investors spy possible ray of hope
Stocks snapped higher as investors spied a possible ray of hope amid the grim tragedy that is the war in Ukraine.
Overnight, Ukrainian President, Volodymyr Zelensky, told US broadcaster ABC that he had "cooled" on the idea of his country joining NATO and said that Kyiv was open to discussions regarding Crimea and what he termed the "pseudo-republics" of Donetsk and Luhansk and that a compromise could be found.
That appeared to coincide with the announcement of a 12-hour ceasefire along six humanitarian corridors in Ukraine in order to allow civilians to leave cities that were being shelled.
It was also followed on Thursday morning by confirmation that the foreign ministers of Russia and Ukraine would meet the next day in Antalya, Turkey.
Against that backdrop, cyclicals were wanted and much of what had moved higher over the past few sessions was sold, including oil and gas stocks, and miners.
Analysts were nonetheless very cautious.
Craig Erlam, senior market analyst at Oanda, said that Zelensky's comments could be seen as a "first and important" step towards a compromise.
Nevertheless, he believed that the current rally was based more on hope than on "solid" foundations.
"I'd be surprised if it's sustained for any significant period of time unless we see actual progress towards a ceasefire and Russian exit," he added.
Along similar lines, Credit Suisse strategist, Andrew Garthwaite, told clients that the consensus for economic growth in Europe was too rosy.
He said that GDP growth in Europe for 2022 was likely to come in closer to 1.0%, instead of the 2.0-2.5% that Credit Suisse had anticipated before the conflict and the consensus for 3.6% growth that the consensus had been anticipating.
The reason were the multiple negative feedback loops that investors were overlooking.
Russian GDP meanwhile could be headed for a contraction north of 20.0%, he added.
Indeed, Garthwaite took his weighting for non-financial cyclicals even lower, particularly for consumer-facing areas.
He also added to his small overweight in Utilities and recommended buying the likes of RWE, ENEL, E.On, National Grid and Acciona.
The strategist was also of the view that European integrated oil companies looked "very cheap" and said that they had lagged the five-year oil price by an "abnormal" amount.
"The lessons from the Iraq/Kuwait conflict is that markets troughed as oil peaked, which was 2 months after the invasion (and, historically, oil has on three occasions peaked at U$140-160pb on today’s prices).
"Tactical indicators are getting close to buy levels but typically stay there for some time."
Top performing sectors so far today
Automobiles & Parts 2,547.22 +12.00%
Travel & Leisure 6,543.02 +9.08%
Personal Goods 29,210.20 +7.72%
Construction & Materials 6,918.67 +6.92%
Leisure Goods 16,885.56 +6.36%
Bottom performing sectors so far today
Precious Metals and Mining 12,450.67 -3.50%
Oil, Gas and Coal 6,840.49 -1.87%
Aerospace and Defence 4,543.13 -1.76%
Industrial Metals & Mining 7,564.11 -1.28%
Alternative Energy 0.00 0.00%