EUROPEAN EQUITY OPEN: Indices open lower; UK inflation falls by less than expected fuelling BoE rate hike bets

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  OVERNIGHT: On Wall Street, stocks finished Tuesday little changed amid clouded risk sentiment after mixed data and corporate earnings (see our US wrap here). Overnight, Asia-Pac stocks were lacklustre in the absence of any major positive macro drivers and following the flat handover from Wall Street; some analysts said the caution was being driven by uncertain US monetary policy was outweighing optimism around China’s rebound. China mainland was cautious ahead of US Treasury Secretary Yellen’s major speech on US-China economic ties on Thursday, where she will outline US economic priorities on China (see here).


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  EUROPEAN OPEN: After a flat day on Wall Street, and a lacklustre APAC session, European equities have opened slightly lower. Earnings continue to come in thick and fast, with Dutch chipmaker topping expectations and giving encouraging commentary on demand. Meanwhile, Just Eat Takeaway (JET LN) lifted guidance and launched a share buyback, while Heineken (HEIA NA) reported Q1 beer sales were weaker than expected. M&A has also been a focus, with offers submitted for Telecom Italia’s (TIT IM) grid unit, while Glencore (GLEN LN) is willing to amend its offer for Teck Resources (TECK); elsewhere, Allianz (ALV GY) is reportedly looking to sell its stake in N26 at a marked discount. UK assets are also in focus this morning after hotter than expected CPI cements the case for a 25bps BoE rate hike in May, with some suggesting there could be further hikes ahead (see below).


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  UK INFLATION: UK CPI eased from 10.4% Y/Y in February to 10.1% Y/Y in March, still hotter than the expected 9.8% Y/Y. The UK stats office said that the largest upward contributions to the annual CPIH came from housing and household services, and food and non-alcoholic beverages. It added that the easing in the annual inflation rate in March mainly reflected price changes in the transport division, particularly for motor fuels. The data sparked a hawkish market reaction, with money markets pricing a +25bps rate hike at the BoE's May 11th meeting with 96% certainty. Capital Economics said that easing in inflation was happening much more slowly than the BoE had hoped, and accordingly, it has become even more likely that rates are raised in May to 4.50%, adding that the release raises the possibility that the eventual terminal rate could even be higher than that.


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  STOCK SPECIFICS: In earnings, Dutch Chipmaker ASML (ASML NA) reported sales and margins above expectations, and said demand remained strong. Communications names will note Netflix (NFLX) reported top- and bottom-lines broadly in line with expectations, although net subscriber additions were short in the quarter, and guidance for the next quarter was soft relative to analyst expectations; some analysts suggested that the soft subscriber guidance was a result of pushing back the launch of its paid-sharing service into Q2. Just Eat Takeaway (JET LN) lifted 2023 guidance and launched a EUR 150mln share buyback, adding that it continues to actively explore the partial or full sale of Grubhub. Heineken (HEIA NA) Q1 beer sales were weaker than expected, falling 3.0% (exp. -1.0%). In M&A, Teck Resources (TECK) said Glencore's (GLEN LN) proposal was "not realisic", and Glencore said it was able to consider improvements to the proposal, adding that it was willing to make an offer directly to Teck shareholders. Allianz (ALV GY) is reportedly looking to sell its stake in N26 at a marked discount. KKR (KKR) reportedly bid EUR 21bln for Telecom Italia (TIT IM) grid, CDP-Macquarie said to have offered EUR 19.3bln. Of note for auto names, Tesla (TSLA) cut prices on Model 3 RWD, Model Y Long-Range AWD, and Model Y Performance; it reports earnings after the US close today. Elsewhere, European Car Sales rose +26% in March, according to ACEA, with sales rising to the highest in almost two years as supply recovers. Our full European equity briefings for April 19th can be accessed here and here.

DAY AHEAD:

• Our full interactive calendar can be accessed here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: Final Eurozone inflation metrics for March is likely to see the monthly measure revised up to 0.9% M/M from an initially reported 0.8% M/M, while the annual measure is expected to be confirmed at 6.9% Y/Y. Eurozone-focussed traders will also be looking to remarks from ECB chief economist Lane and ECB’s market’s chief Schnabel for any clues on whether the central bank will lift rates by 25bps or 50bps at the May 4th confab. Elsewhere, current account and construction output data for February are due. From the UK, BoE hawk Mann will be speaking at the Brandeis International Business School on Climate and Monetary Policy – her comments are due after the European market close. ECB's Knot and de Cos will also give speeches today, and from Switzerland, the SNB's Maechler and Schlegel are on the slate too. On the supply front, Germany will auction EUR 4bln of 2033 Bunds, and the UK will sell GBP 3.75bln 2027 Gilts.


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  NORTH AMERICAN DATA/SPEAKERS: The US data slate is, once again, quite thin. Weekly MBA mortgage applications data and the Fed’s Beige book will be released. Fed’s Goolsbee (voter) will give remarks; recently, he has been making the case that a mild recession remains a possibility. NY Fed President Williams (voter) will speak after the market close to money marketers. From Canada, RMPI and PPI metrics for March will be released; the CPI data released Tuesday showed a cooling of inflation pressures. The US will auction USD 12bln of 20yr bonds.


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  US CORPORATE EARNINGS: Earnings reports are due from ELV, ABT, MS, TSLA, IBM; our full earnings estimates are available here. Other notable companies reporting this week include BX, TSM, T, PM, AXP, UNP on Thursday; PG on Friday; our full Weekly US Earnings Estimates can be accessed here.


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  ENERGY: The API's weekly inventory data reportedly showed headline Crude stocks drawing by -2.7mln bbls in the week (exp. -1.1mln), while stocks at the Cushing delivery hub drew down by 0.6mln; gasoline inventories were -1mln (exp. -1.3mln), and distillate stocks were -1.9mln (exp. -0.9mln). The more widely followed DoE data will be released on Wednesday.

19 Apr 2023 - 08:10- Fixed IncomeEconomic Commentary- Source: Newsquawk