EUROPEAN EQUITY OPEN: Stocks, bonds rally after lower-than-expected UK inflation data

EUROPEAN OPEN: Equities and bonds were lifted in pre-market trade following cooler-than-expected UK inflation data, which has seen expectations for the BoE’s next meeting shift dovishly, with markets now looking for a smaller 25bps rate hike rather than the larger 50bps move (see below for more). Earnings have also been coming in thick and fast: ASML (ASML NA) beat expectations and raised its outlook after orders picked up in the quarter; the tech sector will also note pricing updates from Microsoft (MSFT), which will incorporate AI into its Office packages, sending shares to fresh record highs in US trading. There have been several updates in the materials sector, where Rio Tinto (RIO LN) warned on China demand, while Antofagasta (ANTO LN) cut its production guidance. The releases docket is thin today, but final Eurozone inflation metrics could see the headline and core monthly rates revised a touch higher.

UK INFLATION: Data showed headline consumer prices eased to 7.9% Y/Y in June (exp 8.2%, prev. 8.7%); the core measure eased to 6.9% Y/Y (exp. 7.1%, prev. 7.1%), while the all-services measure of CPI cooled to 7.2% Y/Y from 7.4%. The lower than expected prints triggered a rally in Gilts, which also buoyed other major fixed income peers. Pantheon Macroeconomics noted that the data was underpinned by slowdowns in core CPI and food CPI, while unusually warm weather also provided temporary support for clothing demand. It says that ahead, the headline rate of CPI inflation is expected to continue falling quickly, averaging about 7.0% in Q3 and 4.5-5.0% in Q4, as electricity and natural gas prices decline, and food CPI inflation falls sharply in Q3. Pantheon says the June inflation data will give the BoE the green light to increase the rates by 25bps next month, rather than the larger 50bps that was expected by markets. Money market pricing tilted towards the lower hike in wake of the release, and now price around a 66% probability of a 25bps move (vs around 42% prior to the release). Expectations of the terminal rate also pared back, with markets pricing the peak at around 5.8% in February next year (vs around 6.0% before the release).

EQUITY NEWS:

• Our full European equity briefings for July 19th can be accessed here and here.


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  COMMUNICATIONS: Orange (ORA FP) upgraded to Buy from Neutral at Citi.


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  CONSUMER CYCLICAL: Renault's (RNO FP) Announcement on restructured alliance with Nissan (NSANY) expected soon. Aston Martin (AML LN) upgraded to Buy from Neutral at Goldman Sachs. Volvo AB (VOLVB SS) raises outlook after profit jump. Kering (KER FP) Gucci CEO Bizzarri to leave, temporary replacement and deputy appointments announced. Restaurant Group (RTN LN) reported strong year-to-date trading performance.


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  ENERGY: Equinor (EQNR NO) downgraded to Sell from Hold at Berenberg.


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  FINANCIALS: Nordea (NDASE SS) to acquire Danske Bank's personal customer business in Norway. Aviva (AV/ LN) restated FY22 profits. Hargreaves Lansdown (HL LN) net new business was up Q/Q.


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  HEALTHCARE: QIAGEN (QIA GY) Expands range of digital PCR kits/services for biopharma.


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  INDUSTRIALS: Vinci (DG FP) June airport traffic increases. Kuehne und Nagel (KNIN SW) downgraded to Neutral from Overweight at JPMorgan. Assa Abloy (ASSAB SS) Q2 results exceed expectations, intends to purchase Evolis. Nexans (NEX FP) wins a record-breaking contract for the Euroasia interconnector.


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  MATERIALS: Rio Tinto (RIO LN) warned about China headwinds as iron ore shipments slip. Antofagasta (ANTO LN) cuts FY copper output view to 640-670k tonnes. Vale (VALE) reported iron ore output was up, but sales lagged. Adnoc increases offer for Covestro (1COV GY). Wacker Chemie (WCH GY) lowered FY23 outlook. Evonik (EVK GY) downgraded to Underweight from Equalweight at Morgan Stanley.


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  REAL ESTATE: Segro (SGRO LN) upgraded to Outperform from Underperform at BNP Paribas.


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  TECH: ASML (ASML NA) Q2 results exceed expectations, raises outlook.


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  UTILITIES: Severn Trent (SVT LN) noted strong start to FY operationally; separately, was downgraded to Hold from Buy at SocGen.

TODAY’S AGENDA:

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


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  EUROPE: Final Eurozone inflation metrics for June may see upward revisions to the M/M rates for both headline and core HICP. On the supply slate, Germany will sell EUR 2.5bln in 2052 and 2053 debt; the UK GBP will sell 3.75bln of 2028 debt. On the speaker's schedule, BoE's Ramsden will speak on QT.


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  NORTH AMERICA: The rate of building permits in June is expected to pare slightly, while housing starts are seen declining. Weekly MBA mortgage applications will be eyed after the 30yr mortgage rate jumped above 7.0% last week. The Treasury will reopen a 20yr bond for USD 12bln.


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  US CORPORATE EARNINGS: Today’s highlights include ELV, USB, GS, NFLX, TSLA, IBM; our daily US Earnings Estimates sheet can be accessed here.


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  ENERGY: The DoE will release its weekly energy inventories. The API’s equivalent report released Tuesday reportedly showed headline crude stocks -0.8mln (exp. -2.3mln), Cushing -3.0mln, gasoline -2.8mln (exp. -2.1mln), and distillate -0.1mln (exp. -0.1mln).

19 Jul 2023 - 08:10- Fixed IncomeData- Source: Newsquawk