EUROPEAN EQUITY OPEN: Stocks open higher; China data was constructive; UK unemployment rises, vacancies fall; more bank earnings ahead

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  OVERNIGHT: On Wall Street, stocks firmed Monday, paring early losses into the close amid spot VIX printing 52-week lows beneath 17, while the VIX futures curve steepened further into contango despite the Dollar bouncing higher (our US wrap can be accessed here). APAC were mostly subdued, failing to benefit from the slew of data from China including stronger GDP growth (see below for our review) with the mood tentative across global markets ahead of upcoming earnings releases stateside (our APAC wrap is here).


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  EUROPEAN OPEN: Equities have opened with some gains, underpinned by a late rally on Wall Street and constructive activity data out of China in Q1 and March (we recap these releases below). Today’s focus will again be on banks, with a few US heavyweights on the docket to report earnings – so far, Q1 numbers have been mixed (see below), and today’s updates from GS, BAC and BK will help refine that narrative. Elsewhere, European earnings have also been coming in: easyJet (EZJ LN) expects FY profits to top expectations, while Ericsson’s (ERICB SS) numbers also topped the consensus view, Entain (ENT LN) net gaming revenue surged on robust demand, and MTU Aero Engines (MTX GY) earnings and sales topped street expectations. Our full equity specific briefings for April 18th can be accessed here and here.


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  CHINA ACTIVITY DATA: Q1 GDP and March activity data were better than expected; annual GDP rose to 4.5% Y/Y (exp. 4.0%), albeit there was a favourable base effect given the virus disruptions seen in Q1 2022. Nevertheless, analysts note that output is now 6.8% higher than the recent trough in Q2 2022, and analysts seem optimistic about the rest of the year. Retail Sales data were also encouraging, printing 10.6% Y/Y (exp. 7.4%). Industrial Output rose to 3.9% Y/Y from 2.4% previously, but was a little short of the 4.0% consensus. Fixed asset investment was also a little short of expectations, rising 5.1% Y/Y (exp. 5.7%). But in aggregate, the data has been received positively. Capital Economics notes that the economy was still recovering rapidly at the end of Q1, and high frequency data suggest the rebound continued into April. "Admittedly, industry appears to have lost some momentum this month, but the signals on services remain positive," CapEco writes, adding that "the speed of the recovery has exceeded even our relatively upbeat expectations." It now thinks official GDP growth could hit 6.0% this year, and "in practice, growth is likely to be even higher given that the official GDP figures understated the extent of last year’s downturn."


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  RBA MINUTES: Although the central bank left rates unchanged in April, minutes from that meeting suggest that it could still resume rate hikes at the May meeting, with policymakers discussing the case for a +25bps move in April as inflation remained too high and the labour market was very tight; but the RBA paused to assess the impact of its tightening efforts. "The case for an increase is much stronger than was the case for the April meeting," Westpac says, noting that unlike the minutes for the March meeting, the Board did not specifically commit to considering a pause at the next meeting. Additionally, the recent minutes state that while members also noted that the forecasts produced by the staff in February had inflation returning to target range only by mid-2025, and that it would be inconsistent with the Board’s mandate for it to tolerate a slower return to target; Westpac says these forecasts were conditioned on monetary policy being tightened a little further.


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  UK JOBS DATA: 31k payrolls were added in March, cooling from 98k prior, while the claimant count rose by 28.2k after a fall of 18.8k in February. The February data showed employment rising by 169k, topping expectations of 50k, though the ILO Unemployment Rate rose to 3.8% (exp. 3.7%, prev. 3.7%). On the wages front, average earnings (ex-bonus) were up 6.6% in February, unchanged after revisions, but still hotter than the 6.2% consensus, while the average weekly earnings measure for the 3-month Y/Y period was 5.9% in February, above the expected 5.1%, but unchanged from the prior 5.9%. Pantheon Macroeconomics said the data showed that the slowing trend in wage growth was still visible, despite revisions to previous data. "The labour market is not nearly as hot as the employment figures imply," PM writes, and "several timely indicators suggest that employment will merely hold steady in Q2 as businesses seek savings in the wake of the jump in borrowing costs." It argues that on the face of it, the labour market still looks very tight, but the proportion of inactive people that say they would like a job has increased to the highest since June 2021, and in addition, some of the people who recently have become self employed likely are working less than they would like and so represent hidden slack. "Accordingly, the MPC’s forecast for Y/Y growth in whole-economy total pay to slow to 4.0% by the end of this year still looks credible," Pantheon says, "the upward revision to the wage data, however, have raised the chances of the MPC hiking Bank Rate again next month; a further 25bp now looks like a toss-up, with the odds likely to shift decisively tomorrow after the publication of March’s consumer prices report."


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  US BANK EARNINGS: Results have been mixed so far; while earnings reports from some of the bigger banks released last week eased concerns around the Financials sector, reports from custodian banks State Street (STT) and M&T Bank (MTB) on Monday – as well as broker Charles Schwab (SCHW) – showed their deposits shrinking in the quarter, renewing concerns about the health of the industry following the collapse of Silicon Valley Bank (SIVB) and Signature Bank (SBNY) last month. Reuters notes that last week’s Fed update showed deposits at all commercial banks rose in the week ending April 5th; deposits at the largest US banks are sitting at above levels seen before the collapse of Silicon Valley Bank and Signature Bank, however, deposits at smaller banks are still short of their previous levels. Today, Bank of America (BAC) and Goldman Sachs (GS) report their numbers for the quarter, while there will also be more attention than usual on earnings due from the custodian Bank of New York Melon (BK) as well.

DAY AHEAD:

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


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  EUROPEAN DATA/SPEAKERS: The data slate is thin again, with the only notable data releases survey data from the ZEW; the street looks for improvement at the headline level for both Germany and the EU. There are no ECB speakers scheduled to speak, but Norway’s Norges Bank Governor Bache will be speaking on the Government Pension Fund, while the central bank's Longva will speak on CBDC. On the supply front, Netherlands will sell between EUR 1-2bln of DSLs, while the UK will auction GBP 2.25bln of 2053 Gilts.


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  NORTH AMERICAN DATA/SPEAKERS: US housing starts and building permits are both seen moderating in March. Canada will release CPI data for March, where headline inflation is expected to accelerate a little in the month, although the annual measures -- including the core measures -- are seen easing; more detailed thoughts are available in our weekly briefing here. The Fed’s Discount Rate minutes will be published in the afternoon, and traders will be looking for any clues about how recent banking woes have changed the attitudes of respondents. Fed voter Bowman will be speaking in the session, although her focus will be on digital currencies rather than monetary policy or the outlook. In Washington, there are two Committee meetings of note today: The Senate Budget Committee will hold a hearing entitled "A Rigged System - The Cost of Tax Dodging by the Wealthy and Big Corporations" at 15:00BST/10:00EDT; the House Financial Services Committee will hold a hearing on "Oversight of the Securities and Exchange Commission" with SEC Chair Gary Gensler at 15:00BST/10:00EDT.


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  US CORPORATE EARNINGS: Earnings reports are due from JNJ, BAC, GS, LMT, PLD, NFLX; our full earnings estimates are available here. Notable companies reporting this week include:; ASML, ELV, ABT, MS, TSLA, IBM on Wednesday; 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: API will publish weekly energy inventory data after hours; this week, analysts expect headline crude stocks to draw down by 2.5mln, distillates to draw by 1.8mln, and gasoline stocks to draw by 1.9mln.


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  WEEK AHEAD: The week ahead includes CPI data from Canada, Japan, NZ, UK; PBoC LPR, China activity data; Minutes from the ECB, RBA. Our week ahead preview can be accessed here.

18 Apr 2023 - 08:10- EquitiesData- Source: Newsquawk