EUROPEAN EQUITY OPEN: Indices see mixed start ahead of February inflation data, ECB miniutes

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  OVERNIGHT: On Wall Street, stocks Wednesday finished lower in wake of February's ISM Manufacturing PMI showing prices paid rising, as well as some hawkish Fed rhetoric (see here). Asia-Pac stocks were choppy with price action kept mostly rangebound after the uninspiring handover from Wall Street (see here). US is said to be lobbying allies on possible China sanctions if Beijing gives Russia military aid in Ukraine.


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  EUROPEAN OPEN: The European open has been mixed ahead of key inflation data out of the bloc in the morning, as well as ECB meeting minutes in the afternoon (we preview both events in our day ahead, below). Ahead of these releases expectations of the terminal rate have been creeping towards 4.00% following hawkish regional inflation data reported earlier in the week.


• The corporate earnings slate has been very busy, once again; in tech, SAP (SAP GY) investors will note US peer Salesforce (CRM) saw shares rose by over 15% in afterhours trade following strong Q4 earnings, where it increased its buyback and gave solid guidance for Q1 and FY. German health care giant Merck (MRK GY) sees FY23 profits declining as COVID wanes. In financials, Macquarie is reportedly considering a GBP 5bln-plus takeover bid for M&G (MNG LN). Of note for financial exchanges, LSE (LSEG LN) FY22 PBT was short of expectations, but it plans buyback from Blackstone Group of up to GBP 750mln, while Deutsche Boerse (DB1 GY) reported January cash market turnover of EUR 113.3bln (prev. 173bln Y/Y). In real estate, Unibail Rodamco Westfield (URW NA) will delist from Amsterdam and switch to a Euronext Paris listing. Taylor Wimpey (TW/ LN) sees sales slowing amid economic uncertainty, while Purplebricks (PURP LN) founder reportedly mulls an offer for the company after standing down as CEO four years ago. Updates in the materials sector have been mixed; CRH (CRH LN) sales and profits top expectations, it raises its buyback, and expects resilient demand and increased pricing in 2023; Covestro (1COV GY) sees FY23 lower due to macro and geopolitical challenges, Evonik (EVK GY) swings to Q4 loss, and sees weaker FY23 core profits amid price declines and macro woes, while Clariant (CLN SW) sees revenues declining in 2023. Elsewhere, BASF (BAS GY) said to be halting development of hybrid wheat seeds in North America, will instead focus on developing the new type of wheat in European markets. In cyclicals, Flutter Entertainment (FLTR LN) FY22 sales, EBITDA rise, while initial FY23 trading is in line with expectations.

DAY AHEAD:

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


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  EUROPEAN DATA/SPEAKERS: European flash inflation data for March is the highlight; releases from Germany, Spain and France suggest that there could be upside risks for the headline measures. The ECB meeting minutes will be overshadowed by the inflation release, although could offer insight into whether there are any signs of compromises between hawks and doves, and any commitments with regards to the hike size at the March meeting. The Bank of England's Decision Maker Panel does not usually garner too much market attention, but some analysts have suggested keeping an eye on it for any signs of inflation persistence, particularly within the services sector; ING explains that policymakers want to see further changes in wage and price-setting behaviour in its own survey of businesses. Meanwhile, on the speakers' front, ECB's Schnabel will be speaking at a Money Market Contact Group event, while BoE Chief economist Pill will be speaking on the outlook.


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  US DATA/SPEAKERS: Weekly initial jobless claims and continuing claims data are due, the latter coinciding with the BLS’ survey period for the jobs report. Unit labour costs and productivity revisions for Q4 will also garner attention. On the speakers' slate, Fed's Waller (hawk, voter) speaks on the economic outlook, while Fed's Kashkari (voter) will deliver further remarks today.


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  ENERGY: EIA will release Nat Gas inventory data for the week of 20/Feb, and the street looks for a draw of 71BCF.


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  SUPPLY: Spain will sell between EUR 5-6bln of 2026, 2029, and 2033 Bonos, as well as between EUR 0.25-0.75bln of 2033 linkers. France will sell EUR 10.5-12.0bln of 2032, 2034, 2038, and 2060 debt. The UK will auction GBP 0.65bln of 2051 linkers. Our full G7 bonds auction note can be accessed here.


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  US CORPORATE EARNINGS: Major US corporates reporting today include AVGO and COST; our daily estimates sheet can be accessed here.


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  PREVIEW - EUROZONE FLASH INFLATION (10:00GMT/05:00EST): Headline inflation is expected to ease to 8.2% Y/Y in February, from 8.6% in January; the core measure is seen unchanged at 5.3% Y/Y. German, French and Spanish prelim. Inflation figures have all been on the hawkish side, with a pronounced market reaction in the fixed income space seen in wake of their respective releases. From the ECB’s perspective, HICP is expected to average 6.3% in 2023 at 9.1% and 7.3% for Q1 and Q2 2023 respectively, according to its December macroeconomic projections. ECB chief economist Lane recently said that positive supply shocks and rate hikes have curbed inflationary pressures since December, with forward-looking indicators suggesting a slowdown, although he noted that the wage impact was more uncertain, and he made clear that rates could be held in restrictive territory for a number of quarters. Other central bank officials, including Schnabel and Villeroy, have noted strong wage growth and inflation potentially being persistent, with Schnabel explicitly saying the broad disinflation process is yet to begin. In terms of market expectations, a 50bps rate hike is expected at the ECB’s March meeting, and pricing is also tilting towards 50bps in May too; further out, the implied terminal rate is currently seen around 3.90% in December. Note, the ECB’s cut-off for technical assumptions that go into its economic forecasts is generally around three weeks prior to the gathering, which would imply the assumptions for oil and FX have already been cemented and generally the Euro area macroeconomic projections are finalised on, or just after the release of today’s flash EZ HICP.


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  PREVIEW - ECB MEETING MINUTES (12:30BST/07:30EDT): As expected, the ECB delivered another 50bps hike to the deposit rate and reaffirmed its tightening intentions by stating that it expects to unveil another 50bps adjustment in March. President Lagarde stated that this is warranted on account of underlying inflationary pressures, fiscal measures and wage growth. At the March meeting, the central bank said it would evaluate the subsequent path of its monetary policy. On the balance sheet, it announced that reinvestments will be allocated proportionally to the share of redemptions across each constituent programme of the APP. And at its post-meeting press conference, Lagarde said that the central bank’s economic assessment sees risks to the economic outlook and inflation as “more balanced”. Lagarde said the decision itself had a “large consensus”, adding that there was a discussion on communication, but not full agreement; any clarity on the extent of the disagreement will be of note to the market. For the policy path going forward, Lagarde noted that the ECB will not be at peak rates in March and there will most likely be ground left to cover; this suggested that hopes for a pause in May could be disappointed. Furthermore, Lagarde attempted to stress the longevity of reaching terminal by stating that when the level is reached, rates will need to stay there. As always, the account of the meeting will be viewed in many quarters as being “stale”, particularly as the March meeting and accompanying macro projections are expected to set the course for monetary policy in the Eurozone for H1.

STOCK SPECIFIC NEWS:

• Our full European equity specific briefings for March 2nd can be accessed here and here.


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  EX-DIVS: Diageo (DGE LN), Hargreaves Lansdown (HL/ LN), HSBC Holdings (HSBA LN), and Berkeley Group Holdings (BKG LN) will trade without entitlement to their latest dividend payouts.


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  TECH: Investors in SAP (SAP GY) will note US peer Salesforce (CRM) saw shares rise by over 15% in afterhours trade following strong Q4 earnings, where it increased its buyback and gave solid guidance for Q1 and FY. SoftBank-backed (9984 JT) Arm Ltd has reportedly ruled out a UK listing for now to focus on its US IPO, sources said.


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  HEALTH CARE: Merck (MRK GY) sees FY23 profits declining as COVID wanes. FDA committee voted unanimously that GSK's (GSK LN) vaccine for the respiratory syncytial virus, Arexvy, is effective. Haleon (HLN LN) FY22 organic revenue growth +9% (exp. +8.6%), sees FY23 organic revenue growth between 4-6%.


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  FINANCIALS: Macquarie is reportedly considering a GBP 5bln-plus takeover bid for M&G (MNG LN). Metro Bank (MTRO LN) sees limited NIM growth in FY23. LSE (LSEG LN) FY22 PBT short of expectations, plans buyback from Blackstone Group of up to GBP 750mln. Deutsche Boerse (DB1 GY) reported January cash market turnover of EUR 113.3bln (prev. 173bln Y/Y). UnicCedit (UCG IM) board reportedly proposes increase to CEO's annual pay by 30%. Julius Baer (BAER SW) CEO said there were no immediate plans to go onshore in China. Scor (SCOR FP) FY gross premiums slightly above expectations.


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  REAL ESTATE: Unibail Rodamco Westfield (URW NA) to delist from the Amsterdam exchange, switching to Euronext Paris. Taylor Wimpey (TW/ LN) sees sales slowing amid economic uncertainty. Purplebricks (PURP LN) founder reportedly mulls an offer for the company after standing down as CEO four years ago.


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  INDUSTRIALS: Ryanair (RYA ID) February passengers +22% Y/Y, Wizz Air (WIZZ LN) February passengers +97% Y/Y. Veolia (VIE FP) FY22 sales and EBITDA rise, said dividend is to grow with EPS. Hapag-Lloyd (HLAG GY) sees earnings 'normalising' in 2023 after record 2022 profits. National Express (NEX LN) UK business returned to profits amid rail strikes. Babcock (BAB LN) downgraded at Citi. Travis Perkins (TPK LN) downgraded at Peel hunt. Kion (KGX GY) FY adj. EBIT slips Y/Y.


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  MATERIALS: BASF (BAS GY) said to be halting development of hybrid wheat seeds in North America, will instead focus on developing the new type of wheat in European markets. CRH (CRH LN) sales and profits top expectations, raises buyback, expects resilient demand and increased pricing in 2023. Vallourec (VK FP) sales and EBITDA top expectations, sees profits rising in FY23. Covestro (1COV GY) sees FY23 lower due to macro and geopolitical challenges. Evonik (EVK GY) swings to Q4 loss, sees weaker FY23 core profits amid price declines and macro woes. Clariant (CLN SW) sees revenues declining in 2023.


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  COMMUNICATIONS: United Internet (UTDI GY) acquireD 13.9mln treasury shares during its public share buyback offer. Telecom Italia (TIT IM) said it is nearing a carve-out of its enterprise unit. ITV (ITV LN) profits slide after investments in streaming.


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  CONSUMER CYCLICAL: Flutter Entertainment (FLTR LN) FY22 sales, EBITDA rise, while initial FY23 trading is in line with expectations. The EU is reportedly attempting to revive plans to effectively ban new combustion-engine cars by 2035. Saudi Aramco signed a letter of intent with Renault (RNO FP) and Geely (175 HK) for a new powertrain company to focus on lower emission technologies.


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  CONSUMER STAPLES: AB InBev (ABI BB) topped profit expectations despite sales missing estimates, initiates FY23 outlook, sees 2023 organic adj. EBITDA +4-8% (exp. 7.6%).


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  ENERGY: Technip Energies (TE FP) net profits were in line, order intake slips Y/Y, while backlog narrows. Subsea 7 (SUBC NO) sees lower revenues and higher margins in FY23. Credit Suisse initiates Boliden (BOL SS) with Underperform, and Norsk Hydro (NHY NO) with Outperform.

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