EUROPEAN EQUITY OPEN: Stocks open lower amid debt ceiling angst, soft China PMIs; initial German regoinal inflation slows, French inflation lower than expected

OVERNIGHT: Asia-Pac stocks mostly lower due to mixed sentiment on Wall Street amid debt ceiling jitters, weak China PMI data (we recap below), lower oil prices (see here), and North Korea tensions, as the pariah nation attempted to launch its first military spy satellite, triggering emergency alerts South Korea and in Japan. Aussie CPI data for April was above expectations, prompting some to revise up their RBA rate hike calls (see below). Our APAC wrap is here.

INDICES: At 08:10BST, Euro Stoxx 50 -0.9% at 4,253; FTSE 100 -0.6% at 7,476; DAX -0.9% at 15,761; CAC 40 -0.8% at 7,148; IBEX 35 -0.6% at 9,111; FTSE MIB -0.8% at 26,363; SMI -0.1% at 11,276 .

EUROPEAN OPEN: European equities are on the back foot at the start of the mid-week session, with trader caution amid debt ceiling jitters in the US (hardliners have indicated that they will not vote for the deal; it faces a House vote later today), and softer than expected China PMI data (we recap the details below). European fixed income is rallying after initial German regional inflation data was lower than expected, which follows cooling inflation in Spain; the French inflation metrics also fell short of expectations.

EUROPE INFLATION: Ahead of the national CPI and HICP data out in the European afternoon, initial data from German regions suggests a slowdown is on the cards. North Rhine-Westphalia CPI was -0.2% M/M in May (Prev. 0.5%), with the annual measure falling to 5.7% Y/Y from 6.8%, while the ex-food/energy reading eased to 5.0% Y/Y from 5.5%. Bunds have rallied in wake of the data, taking encouragement from both today's lower German prints, and the lower Spanish data released on Tuesday, which augur well for the Eurozone-wide release on Thursday. The street expects German HICP to rise 0.2% M/M in May (prev. 0.6%), though the annual gauge is seen falling to 6.8% Y/Y in May from 7.6% previously. There was another boost to the fixed income complex after French flash inflation data, which was also softer than expected (HICP 6.0% Y/Y falling from 6.9%, and under the expected 6.4%). Other data showed German import prices -1.7% M/M, a deeper fall than the -0.5% expected decline; the annual measure fell to -7.0% Y/Y (exp. -5.9%) from a prior -3.8%.

NOTABLE MOVERS: MorphoSys (MOR GY) +3.5%, B&M (BME LN) +2.6%, J.D. Wetherspoon (JDW LN) +2.4%, UCB (UCB BB) +1.1%, Entain (ENT LN) -3.2%, Drax (DRAX LN) -2.8%, Heineken (HEIA NA) -2.7%, ITV (ITV LN) -1.7%, Banco BPM (BAMI IM) -1.5%

STOCK SPECIFICS: In M&A, Glencore (GLEN LN) is reportedly preparing a sweetened bid for Teck Resources (TECK), which could be announced in the coming weeks. In energy and utilities, Enel (ENEL IM) is reportedly mulling a top management shakeup, which could see the CFO replaced. TotalEnergies (TTE FP) and TES join to develop a full-scale E-NG production unit; project is expected to benefit from tax credit under 2022 US IRA. UK regulators are investigating Drax’ (DRAX LN) compliance with reporting requirements relating to renewables obligations. In autos, Stellantis (STLAM IM) announced its ACC battery gigafactory inaugurated in France, the first of three planned in Europe. In other consumer sectors, Entain (ENT LN) gave an update on HMRC’s investigation, said negotiators deferred prosecution agreement, including review of former Turkish-facing business, with potential for a substantial financial penalty. Mexico’s FEMSA announced it is offering around EUR 3.3bln worth of shares in Heineken (HEIA NA). WH Smith (SMWH LN) noted continued strong momentum across global Travel business; expectations for the full year increased. In financials, Credit Suisse (CSGN SW) has reportedly dropped a plan for a local bank licence in China to avoid potential regulatory conflict arising from the merger with UBS (UBSG SW). Prudential (PRU LN) appointed Ben Bulmer as CFO. Our full European equity briefings for May 31 can be found here and here.

TODAY’S AGENDA:

• An interactive calendar can be found here; a pdf version can be accessed here.


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  EU DATA/SPEAKERS: German flash inflation data is expected cool on a monthly basis, and the annual rates of inflation are expected to narrow too; hopes have been raised of a lower reading after Spain’s inflation data for the month surprised to the downside. The regional German metrics will be released in the morning, ahead of the aggregated national data in the afternoon. ECB President Lagarde (dovish) will speak at an awards ceremony for student, and there will not be a text release; ECB’s Visco will speak at the Bank of Italy’s annual meeting. The ECB will also publish its Financial Stability Review.


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  US DATA/SPEAKERS: From North America, JOLTs data for April is expected to cool ahead of the release of Friday’s May BLS jobs report; given the market holidays this week, the ADP labour market data will be released on Thursday rather than the usual Wednesday before the BLS release. Elsewhere, the Chicago PMI will be looked to ahead of the ISM report later in the week. Fed’s Bowman (Voter, Hawkish) and Collins (non-Voter, Dovish) will be at a ‘Fed Listens’ event; Fed’s Harker (2023 Voter, Neutral) will speak on monetary policy; Fed vice chair nominee Jefferson (Voter, Neutral) will speak on financial stability; all have spoken recently. The Fed's Beige Book is out in the North American afternoon. The Fed enters blackout at the end of this week ahead of its June 13-14th policy meeting, and markets expectations are currently split between an unchanged outing and a +25bps hike.


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  ENERGY: The API will release its weekly gauge of energy inventories after the close; this week, the street expects headline crude stockpiles to draw by 1.2mln bbls, distillates are seen building 1.1mln, while gasoline inventories are forecast to draw 0.2mln


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  US CORPORATE EARNINGS: CRM and CRWD are the earnings highlights for Wednesday; our daily US earnings estimates note is here. On Thursday, DG, LULU and AVGO will report; weekly US earnings estimates can be found here.


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  RECAP - CHINA PMI: The official NBS Manufacturing PMI fell to 48.8 in May (exp. 49.4, prev. 49.2), the lowest since December 2022. The non-manufacturing PMI eased to 54.5 (exp. 55.3, prev. 56.4). That leaves the Composite PMI at 52.9 in May, down from the 54.4 in April. Capital Economics said that although there was a slight slowdown in May, the overall business activity level was still higher than the average of the past five years, indicating steady growth. It added that as the job market improves and wages increase, there is potential for consumer activity to improve in the coming months.


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  RECAP - AUSSIE CPI: Australia’s weighted CPI data for April showed 6.8% Y/Y, above the expected 6.4%, and rising from the prior 6.3%. In wake of the release, some analysts were revising up their RBA bets, with inflation set to exceed the central bank’s forecasts, some now expect the central bank to lift rates in June, and potentially in July too. Elsewhere, data also showed Housing Credit +0.3% in April (prev. 0.3%), while Private Sector Credit was +0.6% (prev. 0.3%). Westpac notes that credit growth has slowed considerably over the course of last year, associated with the RBA’s rapid-fire interest rate tightening. “This trend deceleration has carried into the first quarter of 2023 with monthly credit growth holding within a subdued range,” Westpac said, though added that “given the high likelihood of April’s monthly outcome for business being a one-off and the approaching weakness in activity, the broader outlook for credit growth remains subdued.”

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