EUROPEAN EQUITY OPEN: Indices open mixed following a two-day sell-off; US CPI ahead

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  OVERNIGHT: On Wall Street, stocks were mixed in choppy trade on Monday, as jitters over the recent bank failures of SVB and Signature Bank left many questions unanswered (see here).  APAC stock markets declined across the board amid a continuation of the selling in financials and with risk appetite severely constricted in the fallout from the recent US bank collapses (see here).


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  EUROPEAN OPEN: European equities start Tuesday trading mixed as traders continue to fret over the health of the global financial system in wake of the collapse of some smaller US banks. European bank issues are also in focus, as Credit Suisse (CSGN SW) announced it has found material weakness in its financial reporting. Traders will shift focus towards the US CPI data, which is due to be released at 12:30GMT; some have suggested that a downside surprise is less likely to spark any significant risk on, given the aforementioned jitters on the banking front, while an upside surprise would limit the extent to which the Fed has scope to pause monetary policy normalisation – we preview the data below. European traders will also be aware of the ECB policy meeting on Thursday; officials have heavily guided towards a +50bps rate hike, and there does not seem to be any walking bank on this front in wake of the recent bank stresses in the US; in fact, ECB's Stournaras, speaking this morning (and during the central bank’s so-called ‘quiet period) said he did not see any impact from the collapse of Silicon Valley Bank (SIVB) on Eurozone banks, which at the margin. Our ECB preview can be accessed here. Elsewhere, some of the UK pre-Budget leaks are already being seen, with traders watching alcohol names this morning after reports that the Chancellor will raise taxes in the sector; our Budget preview is here. Finally, UK labour market data saw a cooling of wage growth, which has dovishly tilted pricing for BoE rate hikes (see below).


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  UK DATA: UK labour market data for January showed employment rising by 65k, topping expectations of 52k, but cooling from the previous 74k; the jobless rate was unchanged at 3.7% against expectations of a 0.1ppts rise. Average weekly earnings were in line with expectations, cooling to 5.7% Y/Y from 6.0%, while the ex-bonus measure was a touch cooler than expected (6.5% vs exp. 6.6% from a prior 6.7%). In wake of the release, the implied market pricing for the BoE's March 23rd confab narrowed, on the cooling of wage growth; markets are now assuming that it is a 50-50 between an unchanged outcome and a +25bps rate hike. "Today’s labour market report strengthens the case for the MPC to hold back from raising Bank Rate further next week, which already had been bolstered by the collapse of two US banks over the weekend," Pantheon Macroeconomics said, as surveys now show that recruitment difficulties now are no more pronounced than in before the pandemic, and redundancies look set to pick up over the coming months.

DAY AHEAD:

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  EUROPEAN DATA/SPEAKERS: Once again, the scheduled data slate in Europe is benign, with only Italian Industrial Output data for January of note. The Scandanavian monpol watchers will note the Riksbank's parliamentary hearing takes place today. There are no major speakers ahead of the ECB's Thursday meeting (our preview is here); on Monday, market-implied pricing suggested there was more chance of a 25bps rate hike, rather than the 50bps that officials have impressed ahead of the blackout window – it is worth noting that this may have been a function of some of the moves seen over the Atlantic, rather than a repricing of the market's view on the ECB trajectory. On the supply front, the Germans will sell EUR 5bln of 2028 Bobls, the UK will sell GBP 3bln of 2033 Gilts, and Italy will sell between EUR 6.5-7.75bln of 2026, 2029, and 2072 debt, as well as EUR 1.5-2.0bln of Green BTPs; our bond auction note can be accessed here.


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  NORTH AMERICAN DATA/SPEAKERS: The highlight is the CPI report for February, where the rate of headline inflation is expected to cool to 6.0% Y/Y from 6.4%, while the core rate of inflation is expected to ease more moderately, with the consensus looking for 5.5% Y/Y from 5.6% - we preview the data below. Elsewhere, the weekly RedBook data will be released. Fed Governor Bowman will be making comments at a banking event, scheduled after the US close.


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  ENERGY: OPEC's MOMR will be released, although isn't expected to contain too much of consequence, so analysts will be keeping an eye on the supply/demand imbalances. After hours, the API will release its gauge of weekly inventories; this week, analysts expect to see headline crude stocks building by 0.6mln, distillates are seen drawing 1.2mln, while gasoline inventories are seen drawing by 2.2mln.


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  US CPI (12:30GMT/08:30EDT): Headline consumer prices are expected to rise +0.4% M/M in February, cooling slightly vs the +0.5% M /M in January; the annual rate of headline inflation is seen easing to 6.0% Y/Y from 6.4%. Within the report, analysts think goods inflation will be around flat, vehicle prices should continue to cool, and apparel prices could even be negative. Core CPI is also expected to rise +0.4% M/M in February, matching the January pace, though the annual measure is likely to fall 0.1ppts to 5.5% Y/Y. Shelter price rises will likely be a key source of core inflation. Analysts will be watching how components of inflation in the services sector perform; Fed Chair Powell has previously acknowledged the progress in taming goods inflation, but this week said there was little sign of disinflation in core services ex-housing, which accounts for more than half of core consumer expenditures. Accordingly, analysts at Moody’s say that “while inflation is set to continue moderating, it may not be enough improvement to keep the Fed from returning to a 50-basis point rate hike.” It is worth adding that some analysts are arguing that the inflation data's importance to the Fed's Rate hike calculus may have diminished on account of some of the financial stability concerns in the banking sector. Last week, before the woes of SVB, markets were debating whether the Fed would lift rates by 25bps or 50bps - now the debate is whether the central bank will make any hike at all. Goldman Sachs, for instance, says "in light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March"; the bank previously expected the Fed to lift rates by 25bps. It adds that it still expects the central bank will deliver a 25bps rate rise in May, June, and July, and now expects the terminal rate to be between 5.25-5.5%, though it sees considerable uncertainty about the path.

STOCK NEWS:

• Our full European equity specific briefings for March 14th can be accessed here and here.


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  COMMUNICATIONS: Vivendi (VIV FP) enters exclusive talks on sale of Editis, has received several offers. Telefonica Deutschland (O2D GY) downgraded at Credit Suisse.


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  CONSUMER CYCLICAL: Volkswagen (VOW3 GY) plans to invest EUR 180bln between 2023-2027, with two-thirds earmarked for electrification and digitalisation; VW said BEV deliveries +26% in 2022, further significant models to be released in 2023; maintains a strong position, expects supply chain bottlenecks to ease in 2023. Tod’s (TOD IM) beat FY profit forecasts, sees excellent start of the season, expects to meet 2023 consensus targets.


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  CONSUMER STAPLES: Sainsbury’s (SBRY LN) acquires freeholds of 21 supermarkets for GBP 431.5mln from Supermarket Income REIT. Telegraph reports that the UK Budget will see alcohol taxes rising with inflation. Kesko (KESKOB FH) February Same Store Sales +4.1% Y/Y.


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  ENERGY: Equinor (EQNR NO) board member Michael Lewis will resign in order to avoid potential conflict of interests following his appointment as CEO in Uniper SE (UN01 GY).


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  FINANCIALS: UK PM Sunak said UK banks were well capitalised, liquidity was strong. HSBC (HSBA LN) plans to inject GBP 2bln of liquidity into SVB’s (SIVB) UK arm. Credit Suisse (CSGN SW) identified ‘material weaknesses’ in its reporting for FY 2021 and 2022, is adopting a remediation plan; Swiss regulators are closely monitoring the bank. TP ICAP (TCAP LN) FY profit higher on market volatility, to boost dividend. Of note for UK pension names, Chancellor Hunt expected to raise the tax-free allowance for pensions by over GBP 500k. Generali (G IM) reports record operating profit in 2022.


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  HEALTH CARE: China National Medical Products Admin accepts GSK (GSK LN) regulatory review for Nucala in severe eosinophilic asthma; GSK also announced positive pivotal Phase III data for its 5-in-1 MenABCWY vaccine candidate. AB Science (AB FP) reports a first complete bone marrow response in a relapsed refractory acute myeloid leukemia patient.


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  INDUSTRIALS: Fraport (FRA GY) FY revenue tops expectations, sees FY23 passenger traffic at 80-90% of pre-pandemic levels. BAE Systems (BA/ LN) will play a key role in the delivery of AUKUS submarines. International Distributions Services’ (IDS LN) Royal Mail and CWU union to extend pay talks. Siemens (SIE GY) CEO talks positively about opportunities in Southeast Asia. Flughafen Zuerich (FHZN SW) sees a resturn to profit in FY22. SocGen downgrades Geberit (GEBN SW), Ferguson (FERG LN) and Saint-Gobain (SGO FP).


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  MATERIALS: Wacker Chemie (WCH GY) forecasts lower FY23 profits as selling prices decline. Rio Tinto (RIO LN) upgraded at CLSA. SocGen upgrades Heidelberg Material (HEI GY) and Holcim (HOLN SW). Brenntag (BNR GY) downgraded at JPMorgan Chase.


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  TECH: EU seeks new controls to limit China from acquiring high-tech, exploring ways to police how European companies invest in production facilities overseas.


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  UTILITIES: Centrica (CNA LN) will reportedly extend the lives of Heysham 1 and Hartlepool nuclear power stations, now expected to close two years later than originally planned. Pennon Group (PNN LN) on track to deliver FY targets.

14 Mar 2023 - 08:10- EquitiesData- Source: Newsquawk