Snap's warning hits sentiment Wall Street futures drop UK...

• Snap's warning hits sentiment
• Wall Street futures drop
• UK windfall energy tax plans hit utilities
• STOXX 600 loses 0.7%

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SOME BULLISH VIEWPOINTS (1101 GMT) Stock bears have a lot on their plate, with fears about a hard landing of the U.S. economy adding to war-induced growth risks and China's lockdown policy.

UBS analysts say markets may have overreacted negatively to recent disappointing news, mentioning comments from JPMorgan Chief Executive Officer Jamie Dimon.

Here are some facts UBS analysts flag, suggesting investors to prepare for further volatility.

"The hawkish shift in Fed rhetoric over the last month appears to have helped keep inflation expectations under control," they say, adding U.S. 10-year breakeven inflation rates have fallen to 2.61% from 3.1%.

They see early signs in the U.S. that labour demand may be starting to slow, which should help moderate wage growth, inflation expectations and the Fed tightening.

Last week's recent warnings from Walmart and Target on profit margins are not so scary as they could reflect the normalization of spending back to services from goods after the post-pandemic pent-up demand, they say.

"We continue to believe that investors will want more clarity on the 3Rs -- recession, rates, and risk -- before sentiment is likely to improve more durably," Mark Haefele, Chief Investment Officer, UBS Global Wealth Management.

The outlook remains pretty gloomy for risky assets. Shares slid worldwide on Tuesday as fears about weak earnings and slowing growth punctured the recent mini-rally.

China shares fell as stricter COVID-19 measures in the country's capital reignited worries over slowing growth despite Beijing's pledges of further economic support.

(Stefano Rebaudo)

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	LESSONS FROM ROYAL MAIL AND ITV'S POTENTIAL FTSE 100 EXIT 

(1007 GMT)

Royal Mail .RMG.L and ITV .ITV.L both face potential demotion from the FTSE 100 with their market capitalisations now well below top FTSE 250 rivals after losing 36.9% and 35.1% respectively year-to-date.

The FTSE All Share Index Quarterly Review is due to be announced at the start of June and with it will come lessons about shifting post-pandemic trends.

"The latest quarterly review comes amid an evaporation of investor confidence as worries ratchet up about the impact of soaring inflation and rising interest rates on growth at a time when the global economy is still adjusting to changes brought about by the pandemic," Hargreaves Lansdown analyst Streeter argued in a note.

For Royal Mail, declining post-pandemic parcel numbers and rising stamp prices amid soaring inflation are weighing on the stock, although its automation drive and the fact that parcel numbers are higher than before the pandemic helps, Streeter said.

Meanwhile fierce competition in the streaming sector combined with a cost-of-living crisis are seen as headwinds for ITV.

Centrica .CNA.L , up 12.4% YTD, and Johnson Matthey’s .JMAT.L , up 13%, are both contenders for entry back into the FTSE 100.

"Centrica’s fortunes have lifted along with higher energy prices (...) while investors are giving Johnson Matthey the benefit of the doubt even though it hasn’t as yet carved out its future in the electric world", Streeter added.

You can see below how Royal Mail and Centrica have trailed behind the FTSE 100 so far this year while Centrica and Johnson Matthey outperformed:

(Lucy Raitano)

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	LAGARDE REMARKS: HAWKISH OR DOVISH? (0919 GMT) 

No doubt, remarks from European Central Bank president Christine Lagarde are the hot topic as it's the first time she has spoken so clearly about the future central bank's moves.

However, analysts seem to believe these comments were not so hawkish considering the recent surge in yields on monetary tightening expectations.

Lagarde's statements which implied two 25 bps rate hikes in July and September "was priced in the rates market," MUFG analysts said.

"But it was the most explicit comment yet from a senior governing council member suggesting consecutive rate hikes, which in turn adds credibility to potentially four rate hikes this year in total," they added.

"Markets are taking the Lagarde's confirmation in a stride," Commerzbank analysts say about yesterday's remarks by Lagarde.

"After all, a steep path had already been discounted, and her insistence on gradualism, optionality and flexibility appears to be reducing the risk of bolder 50bp hikes," they add.

Last week ECB official Klaas Knot said a 50 bps July rate hike was possible if inflation broadened.

Euro zone bond yields are falling by around 4 bps after today's further comments from Lagarde forecasting the ECB's deposit rate at zero or "slightly above" zero by the end of September.

Money markets are still pricing in around 105 bps of rate hikes by year-end.

(Stefano Rebaudo)

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	WINDFALL TAX THREAT SINKS IN FOR BRITISH UTILITIES (0848 

GMT)

European utilities are accelerating their early morning losses and are now down over 3%, set for their worst daily performance since March.

Much of the downward pressure is directed to UK groups after the FT reported that Britain's finance minister Rishi Sunak has ordered to draw up plans for a possible windfall tax on more than 10 billion pounds of excess profits by electricity generators, including wind farm operators.

"This news adds to negative sentiment on regulation in the sector and could impact RWE, SSE, DRX, CNA, IBE, EDF, IBE & ORSTED within our coverage", Jefferies analysts wrote in a note this morning, adding that "in the long term, we see a windfall tax as harmful to UK energy".

Questions are also being raised about how the windfall tax could impact future investments.

"While it is right that some support should be given to those most in need during these difficult times, the way in which new funds are raised means the Government runs the risk that energy companies slow down investment in new green projects which could make it harder for the country to hit its net zero emissions targets," said Russ Mould, investment director at AJ Bell.

One stock is being singled out in particular and that's Drax, losing 18%, after its rating and target price was cut by Citi which believes the company is one of the most vulnerable to possible new taxes.

Also see: - BUZZ-UK power companies plunge on report of potential windfall tax

(Julien Ponthus)

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	SNAP! (0748 GMT)  

How much of this morning's losses can be attributed to Snap slashing its earnings forecast is open to debate but it sure played a big role in sending the market into risk-off.

Snap's Frankfurt-listed shares are losing a whopping 35% and Nasdaq futures are down almost 2%.

"Snap has put the focus again on the growth issue and the slowing down of activity which indeed seems to be taking place", commented Stephane Ekolo, global equity strategist at Tradition in London.

The social media company said the economy had worsened faster than expected in the last month.

The STOXX 600 is losing 0.9% and European tech is feeling the heat with a 1.6% fall.

Utilities, down 2.5%, are the worst performing sector with a spectacular 13% slide for Britain's Drax following a downgrade from Citi.

"Drax is one of the most operationally geared to a fall in commodity prices and/or political intervention in the power sector", the bank's analysts explained in a note.

Another big loser with a 6.8% drop is Air France-KLM which announced a 2.26-billion-euro rights issue to repair its balance sheet and further repay French state aid.

(Julien Ponthus)

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	I KNOW WHAT YOU'LL DO THIS SUMMER (0701 GMT)  

European Central Bank President Christine Lagarde openly admitted for the first time what investors had already been betting on for a while: negative interest rates, a eurozone feature for eight years, will most likely be gone by the end of summer.

With inflation running at a record 7.4% in the euro zone and money markets pricing over 100 basis points of hikes by end-2022, the candid tone of Lagarde's announcement was perhaps the most surprising news for investors.

Government bond yields firmed, the euro rose and Lagarde will have a chance to give more details when she speaks at Davos after a fresh batch of indicators on European business activity.

But all eyes are now on the U.S. Federal Reserve with high expectations that the minutes from the May meeting released on Wednesday will show a commitment to swiftly tighten in a bid to tame inflation.

Chair Jerome Powell speaks later on Tuesday and no doubt investors will be hoping for a fresh update on his intentions.

Much of the recent market turmoil across stock markets has been blamed on central banks turning hawkish and many strategists believe only a dovish policy shift could turn the table in their favour again.

Blackrock cut developed markets equities to "neutral" from "overweight" but added that a "dovish pivot by the Fed" would make its analysts consider increasing exposure back to stocks again.

In the meantime, stock markets seem set for a rough session on Tuesday with European and U.S. futures trading deeply in the red while cash trading in Asia is also set to close in negative territory.

The upbeat last session on Wall Street gradually gave way to a risk-off sentiment and Nasdaq futures are now down close to 2% with traders blaming part of the mood swing to an earnings warning from Snap.

Key developments that should provide more direction to markets on Tuesday:

- Japan's May factory activity grows at slowest rate in 3 months - flash PMI

- China's property market woes expected to worsen in 2022

- Purchasing Managers' Index (PMI) across Europe - Federal Reserve Chair Jerome Powell gives welcome remarks before the National Center for American Indian Enterprise Development (NCAIED).

- Opening remarks by ECB President Christine Lagarde at "Europe's Global Role" dinner during the World Economic Forum in Davos, Switzerland

- Riksbank Financial Stability Report 2022 - Federal Reserve Bank of Philadelphia issues Non manufacturing Business Outlook Survey for May

(Julien Ponthus)

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	ASIA, EUROPE AND THE U.S. LOSE GROUND (0546 GMT)	

For once, the three regions are moving in sync: European and Wall Street futures are trading in the red while cash trading in Asia is also set to close in negative territory.

The upbeat last session on Wall Street gradually gave way to a risk-off sentiment and Nasdaq futures are now down close to 2% with traders blaming an earnings warning from Snap.

In Europe, futures are losing about 0.7%.

(Julien Ponthus)

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