EUROPEAN EQUITIES UPDATE: Europe sees some optimism from sub-forecast UK inflation, while US trades sideways ahead of the FOMC

Analysis details (09:31)

• Stocks in Europe are mostly but modestly firmer (Euro Stoxx 50 +0.4%, Stoxx 600 +0.4%) after softer-than-expected UK CPI titled equity futures into the green ahead of the cash open, and with the mood in the region improving from the downbeat performance in Asia-Pac. US equity futures remain caged in the run-up to the FOMC meeting and Chair Powell’s presser (full Newsquawk preview available in the Research Suite)


• To recap the APAC session, stocks were mostly lower with risk appetite dampened ahead of the incoming deluge of central bank policy announcements including the latest FOMC confab. ASX 200 was dragged lower by the commodity-related sectors, Nikkei 225 gradually weakened, and Chinese bourses conformed to the subdued mood after the PBoC unsurprisingly maintained its benchmark 1-year and 5-year Loan Prime Rates at 3.45% and 4.20%, respectively, while Country Garden’s dollar bondholders have been left in the dark regarding a coupon payment which was due on Monday although the developer still has a 30-day grace period.


• US equity futures are flat across the board (ES Unch, NQ Unch, RTY Unch YM Unch) as the clock ticks down to the first major central bank rate decision of the week, whereby the Federal Reserve is expected to hold rates, but traders will be looking to the updated economic projections to see whether the central bank is still working on the assumption that it will hike interest rates once more in 2023, in line with its previous SEP, or whether it now sees rates as having reached terminal. In terms of cash market forecasts, several desks in recent days have raised their year-end SPX forecasts, with SocGen upgrading their view to 4,750 (from 4,300) while Oppenheimer Asset Management sees the index at 4,900 (from 4,400 in December). This morning, Bank of America Global Research raised its 2023 year-end S&P 500 target to 4,600 (prev. 4,300). On the flip side, Pimco yesterday warned of a 15% fall in the SPX from rising fuel costs making it “difficult for the Fed to meet the market expectations of three rate cuts next year.”


• Back in Europe, stocks hold onto modest gains after receiving a boost from the softer UK inflation metrics, which in turn pulled back market expectations regarding tomorrow’s BoE decision to a near-50/50 chance between a hold and hike (vs ~79% chance for a hike pre-data). The Sterling and bond yield declines post-data have provided a cushion for exporters in the FTSE 100 (+0.6%) while boosting UK homebuilders plagued by high mortgage rates (Taylor Wimpey +5%, Barratt Developments +4.4%, Persimmon +4.4%, British Land +3.6%), with banks also benefitting from the mortgage optimism (Lloyds +3.1%, Natwest +3.2%). Sticking with the UK index and on the flip side, Energy names lag (Shell -1.6%, BP -1.6%) amid the pullback in oil prices and following consecutive sessions of outperformance. As such, the broader European sectoral picture sees Real Estate and Banks outperforming whilst Energy and Basic Resources reside towards the bottom of the bunch. The Auto sector is also in focus today with auto names seeing broad upside as EU27 new car registrations soared +21% Y/Y in August, with BEV registrations exceeding 20% share for the first time. The release suggested August double-digit percentage gains in most markets, including the three largest: Germany (+37.3%), France (+24.3%), and Italy (+11.9%). On that note, European Commission President von der Leyen spoke to Bloomberg yesterday and said massive China subsidies for EVs require a probe, and added the bloc will not accept an un-levelling of the playing field. Elsewhere, the Luxury sector in Europe is subdued after Jefferies downgraded LVMH (-0.1%), Kering (-0.8%) and Moncler (-0.2%) amid China headwinds.

20 Sep 2023 - 09:36- Research Sheet- Source: Newsquawk