EUROPEAN EQUITY OPEN: Stocks open around flat amid US debt ceiling impasse; focus for European traders switches to PMI data

OVERNIGHT: Wall Street was mixed on Monday: the Nasdaq gained support from Alphabet and Meta Platforms, while the S&P 500 was flat with cautious investor behaviour ahead of debt ceiling discussions. Our US wrap is here. President Biden and House Speaker McCarthy had a "productive" meeting on preventing a US debt default, but no deal was reached. Both sides again agreed that a default was off the table. McCarthy expressed optimism and intends to communicate with Biden daily until an agreement is reached. Treasury Secretary Yellen reiterated the urgent need to raise or suspend the debt limit to avoid financial catastrophe. APAC stocks initially rose to two-week highs but then relinquished early gains amid caution over the US debt ceiling impasse, while traders were also awaiting today's PMI releases in Europe and the US. Aussie shares were capped by weakness in the consumer sectors and after Australia’s flash manufacturing PMI remained at a contraction. Japanese stocks climbed to the highest levels since 1990 before slumping in afternoon trade. China stocks were subdued following Hong Kong’s failure to sustain the early tech-led momentum after China approved 86 domestic online games in May, while the mainland was pressured after press reports speculated that the PBoC's benchmark lending rates will remain unchanged for some time, and as the US denied it was planning to lift sanctions on China's defence minister. Our APAC wrap is here.

EUROPEAN OPEN: European indices start the day around flat, and while traders will be keeping an ear on US debt ceiling talks, the focus will be on PMI data released in the morning. Analysts will be watching to see if the upside surprise seen in April can continue into May, although consensus expectations look for a mixed showing (see day ahead, below).

STOCK SPECIFICS: In communications, Altice UK has acquired a further 650mln shares in BT (BT/A LN), raising its stake to around 24.5%; Altice UK confirmed it does not intend to make an offer for BT. ITV (ITV LN) makes an investment in PitPat, adding it to its media for equity portfolio. Of note for Deutsche Telekom (DTE GY), T-Mobile (TMUS) CEO sees Q2 postpaid phone net additions at flat or higher vs Q2 last year. In financials, UBS (UBSG SW) China fund management project has reportedly stalled after the Credit Suisse (CSGN SW) deal. First Citizens BancShares (FCNCA) sues HSBC (HSBA LN) for reportedly poaching dozens of SVB staff. Julius Baer (BAER SW) saw modest inflows after a slow start to the year. In consumer sectors, British American Tobacco (BATS LN) is facing shareholder activism, with top holders calling for buybacks to boost the stock price. Nestle (NESN SW) operations chief to retire, Stephanie Pullings Hart named successor. For UK staples, Chancellor will meet food manufacturers today and call for the industry to assist in easing pressure on household budgets. In tech, Samsung Electronics (005930 KS) Q2 DRAM shipments expected to have increased 15-20%, and SK Hynix (000660 KS) shipments expected +30-50% in Q2 amid reported improvements in South Korea's chip industry. In materials, Antofagasta (ANTO LN) Centinela Mine supervisor union to extend contract negotiations to avoid strike. Fresnillo (FRES LN) chair notes recent reforms of mining laws in Mexico, but said Fresnillo will not be significantly affected. In energy, Tullow Oil (TLW LN) working interest in South Lockichar blocks is to increase from 50% to 100%. In real estate, Barratt Developments (BDEV LN) chair John Allan to step down. Our full European equity briefings for May 23rd can be accessed here and here.

TODAY’S AGENDA:

• Our full interactive day ahead calendar can be accessed here, a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: Flash PMI data for May is the highlight, and the street expects a mixed showing (Eurozone manufacturing is expected to improve slightly, though services is expected lower, and the Composite is seen declining). The regional European metrics will also be released over the course of the morning. Meanwhile, from the UK, a mixed report is also expected, with small deviations vs the previous month. The slate of ECB speakers is busy again, although many of those on the docket have spoken heavily recently (de Guindos, Nagel), but comments from the Supervisory head Enria will be in focus. Meanwhile, from the Old Lady, BoE Governor Bailey, Chief Economist Pill, the dovish and outgoing Tenreyro, and the hawkish Mann will appear before a Treasury Select Committee Hearing. Also for those focussed on the UK, Chancellor Hunt and IMF's Georgieva will speak on the UK Economy. On the supply front, Netherlands will sell EUR 2.0-2.5bln of 2028 DSLs; UK will sell GBP 750mln of 2051 linkers; Germany will sell EUR 6.0bln of 2025 Schatz.


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  US DATA/SPEAKERS: Flash PMI data will be in focus, helping to shape expectations of what the ISM data (released early June) will look like; thus far, regional manufacturing services have been mixed. The Richmond Fed will be releasing its gauge after the open. The New Home Sales data for April will be eyed after the March data spiked by over 9%, with the consensus expecting a slight decline (we'll also be watching the months' supply, after it fell to 7.6 months’ worth from 8.4 previously). On the supply front, the US will sell USD 42bln of 2yr notes, ahead of a sale of USD 43bln of 5yr notes on May 24th, and USD 35bln of 7yr notes on May 25th; all will settle on May 31st. Fed's Logan (a 2023 voter) will deliver remarks today; she triggered a market reaction last week with hawkish commentary, although after Chair Powell's comments on Friday, analysts say that the bar to price in further hawkishness is higher as Powell has all but endorsed an unchanged outcome at the June FOMC.


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  CORPORATE EARNINGS: Consumer discretionary giant Lowe's Companies (LOW) will report numbers in the premarket; Autozone (AZO) will also be out before the open. Afterhours, Intuit (INTU) will be in focus amid some recent reports that the government will let the IRS allow people to prepare and file taxes electronically, and for free. PANW is also out AMC. Our Daily US Earnings Estimates sheet can be accessed here.


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  ENERGY: Ahead of the DoE weekly inventory data, due Wednesday, the API will report its gauge of stock changes; the street this week looks for crude stocks to build 0.5mln, distillate stocks to build 0.5mln, while gasoline inventories are seen drawing 1.1mln. Elsewhere, the Saudi Energy Minister, Iraq Oil Minister, and QatarEnergy CEO will speak at the Qatar Economic Forum.

23 May 2023 - 08:10- Research Sheet- Source: Newsquawk