Newsquawk

EUROPEAN EQUITY OPEN: Indices open cautiously higher after 'underwhelming' China growth targets; retail sales and ECB's Lane ahead

OVERNIGHT: Asia-Pac stocks were mostly positive as the majority of bourses took impetus from last Friday’s gains on Wall Street (see here). Gains were capped, however, after China set a modest economic growth target of about 5% for 2023 (exp. 5.0-5.5%), the slowest growth target in over two decades, and CPI around 3% (target unchanged vs 2022). SocGen said while the growth view may seem underwhelming, it may be a strategy of ‘aim low and overachieve’ by the upcoming new government team, rather than lack of confidence among policymakers. “The Government Work Report does indeed set economic growth and job creation as the top priorities, but there is no visible step-up in either fiscal or monetary easing,” SocGen writes, “despite a smaller broad deficit ratio, we see two big positive developments on the fiscal front: 1) this year’s fiscal resources will be used to support the real economy, rather than zero-COVID measures; and 2) the central government is finally willing to borrow more.” The bank adds that “the biggest stimulus to the Chinese economy this year will be the end of zero-COVID and COVID, and the second biggest is a more pragmatic policy stance toward real estate and internet platforms, which is reconfirmed in the NPC reports.”

EUROPEAN OPEN: European equities have seen a slightly higher start to the week, with some caution as traders digest lower than expected growth targets out of China, which is weighing on the commodity complex. There has been hotter-than-expected inflation data out of Switzerland, with consumer prices rising +0.7% M/M in February (exp. +0.4%), pushing the annual rate to +3.4% Y/Y (exp. 3.1%); recently, Capital Economics has noted that although the franc has recently played a small role in keeping Swiss inflation low, it is unlikely to be a key driver of inflation in the coming years, and the SNB is committed to a strong CHF, adding that “partly for that reason, we expect the SNB to continue to sell FX reserves to support the franc in the coming months, and we think the Bank will raise the policy rate from 1.0% currently to a peak of 1.75% by June.” Elsewhere, ahead today, there is retail sales and construction PMI data due, while there are also remarks due from ECB’s chief economist Lane (see Day Ahead section, below). Traders will also be eying other key events this week, like testimonies from Fed Chair Powell as well as the key US jobs report - markets will be looking for any incremental contributions to the debate on whether rates should be held higher level and for longer than was assumed in the Fed’s previous forecasts.

Our live day ahead calendar can be accessed here; a PDF version can be accessed here.

EUROPEAN DATA/SPEAKERS: The Sentix Index for March is expected to improve a little. Eurozone January retail sales for January are seen rising vs December, but still seen lower on an annual basis. ECB Chief Economist Lane will participate in a Q&A on inflation; last week, Lane noted that risks to inflation remained to the upside, and that monetary policy transmission could be slower this cycle, which many analysts took as a sign that he may be more open towards another 50bps rate rise at the May meeting, as well as a potentially higher terminal rate than previously assumed.

NORTH AMERICAN DATA/SPEAKERS: US factory orders for January, and durable goods revisions for the month are the highlight on a thin docket. From Canada, the Ivey PMI data for February is due.

WEEK AHEAD: Highlights include Fed Chair Powell's dual testimonies to Congress (Tue, Wed), US jobs data (Fri); markets will be looking to these events for any incremental contributions to the debate on whether rates should be held higher level and for longer than was assumed in the Fed’s previous forecasts. Elsewhere, China CPI (Thu) and trade data (Tue), Aussie retail sales (Tue); policy announcements from the RBA (Tue), BoC (Wed), BoJ (Fri). Our full week ahead preview can be accessed here.

COMMUNICATIONS: CDP board approves non-binding offer for Telecom Italia (TIT IM) fixed-line network; offer will be valid until March 31st.

CONSUMER CYCLICALS: Austrian gamblers are struggling to recoup money they have lost betting on websites owned by 888 (888 LN) and Flutter (FLTR LN), pursuing action in Malta, where the companies have offices. Activist investor Oasis reportedly wants The Restaurant Group (RTN LN) to look into selling airport concessions and pubs to reduce debt. Volkswagen (VOW3 GY) EV brand Scout will build a USD 2bln manufacturing plant in South Carolina. Barclays upgrades Accor (AC FP), downgrades InterContinental Hotels (IHG LN).

ENERGY: Shell (SHEL LN) CEO mulls ditching plans to reduce its oil output this decade; separately, Novatek ready to buy out Shell's 27.5% stake in the Sakhalin-2 project. Eni (ENI IM) reaches deal with ADNOC on energy transition projects.

FINANCIALS: Credit Suisse (CSGN SW) shareholder Harris Associates began cutting its exposure in October, has now divested completely; Harris owned as much as 10% of the bank in 2022. UBS (UBSG SW) said total performance-based bonus pool fell to USD 3.3bln in 2022 from USD 3.7bln in 2021. GAM (GAM SW) postponed release of FY results until end-April in the hope that the extra time would allow it to find a buyer. Of note for Nexi (NEXI IM), Italy Treasury starts talks on plans to cut card payment fees for shop owners.

HEALTH CARE: Roche (ROG SW) received FDA approval of label expansion for Ventana PD-L1. AstraZeneca's (AZN LN) Enhertu showed clinically meaningful and durable responses across multiple HER2-expressing tumour types in DESTINY-PanTumor02 Phase II trial. Grifols (GRF SM) downgraded at Morgan Stanley.

INDUSTRIALS: Rheinmetall (RHM GY) will replace Fresenius Medical Care (FME GY) in the Dax 40 (DAX), effective March 20th.

MATERIALS: Commodity-related names will be eyed after crude and some industrial metal prices fell following China announcing a lower-than-expected GDP growth target of "about 5.0%" (exp. 5.0%-5.5%). Solvay (SOLB BB) will sell its stake in RusVinyl for EUR 430mln.

REAL ESTATE: Foxtons (FOXT LN) to acquire Atkinson McLeon, deal expected to be announced on Monday. Purplebricks (PURP LN) upgraded at Davy Research.

TECH: WANdisco (WAND LN) has reportedly hired banks to prepare for a US listing; dual listing seen in 2023/24.

06 Mar 2023 - 08:10- Research Sheet- Source: Newsquawk