EUROPEAN EQUITY OPEN: Stocks open with modest gains ahead of today's key US CPI data

OVERNIGHT: On Wall Street, stocks trended lower on Tuesday with losses led by the Nasdaq 100, as Technology an underperformed, though stocks were generally lower across the board. Our US market wrap can be accessed here. Fiscal talks between President Biden and Congressional leaders did not yield any significant progress, but talks will continue throughout the week, and Biden will meet leaders again on Friday. In the APAC session, stocks were mostly lower as the region digested a slew of earnings updates and following the weak handover from Wall Street. Aussie shares saw underperformance in financials, energy and telecoms but with losses stemmed by defensives and as participants mulled over the details of the recent federal budget. China stocks conformed to the global downbeat mood, while a report which said Chinese GDP growth was likely to pick up in Q2 due to policy support did little to spur risk appetite. Our Asia wrap is here.

EUROPEAN OPEN: European equities open with mild gains ahead of today’s key US CPI report (our preview is below in the day ahead section). In Europe, German final inflation data for April was unrevised, data released today showed. The ECB speak in premarket trade has leaned somewhat dovish, with the ECB's German representative Nagel suggesting that the central bank's rate hike policy may be moving into the final stretch, even though there is further to go; this theme has been echoed by ECB's Stournaras, who thinks that rate rises will be over this year.

STOCK SPECIFICS: ABN AMRO (ABN NA) saw higher than expected Q1 profits, helped by lending income. Credit Agricole (ACA FP) earnings topped expectations on boost to trading sales. Alstom (ALO FP) sees higher margins ahead, but has delayed mid-term targets. Asos (ASC LN) saw a H1 loss with shoppers retrenching. Continental (CON GY) sees earnings rise 35% on strong quarter for automotive. E.ON (EOAN GY) sees hitting the upper end of its 2023 outlook after strong Q1. Tui (TUI GY) sees summer demand lifting 2023 profits. In M&A, a consortium led by Pierre Lassonde has proposed purchasing Teck Resources’ (TECK) coal unit, with Lassonde saying Teck wants to move forward and have something done in 8-12 weeks; Glencore (GLEN LN) USD 23bln offer was rejected in April, though the company continues to express an interest in the unit. Meanwhile, Software AG (SOW GY) confirmed receipt of another non-binding offer from Bain's Rocket Software, but said it was not a superior offer, and it supports Silver Lake's offer. Our full equity briefings for May 10th can be accessed here and here.

DAY AHEAD:

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


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  EUROPE DATA/SPEAKERS: German final inflation metrics for April are expected to be unrevised. Italian industrial output is seen rebounding in March after the decline in February. On the central bank front, Riksbank's Bunge will speak on economic developments. On the supply front, the UK will sell GBP 3.50bln of 2033 Gilts, while Germany will sell EUR 2.5bln 2053 and 2050 debt.


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  US DATA/SPEAKERS: The main event is the US CPI data for April, where the headline is expected to be unchanged at 5.0% Y/Y, while the core rate is expected to pare back to 5.5% Y/Y from 5.6%. Elsewhere, Federal Budget data for April is due in the afternoon. Supply-wise, the US will sell USD 35bln of 10yr notes.


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  ENERGY: The API’s weekly inventory data reportedly showed headline crude stocks +3.62mln (exp. -0.9mln), Cushing stocks -1.3mln, gasoline +0.4mln (exp. -1.2mln), distillate -3.9mln (exp. -0.8mln). ING said that overall, the numbers were neutral to slightly bearish, given the larger-than-expected build in crude. The DoE weekly data will be released later today.


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  US CORPORATE EARNINGS: The highlights on today earnings slate includes DIS; our Daily US Earnings Estimates note can be accessed here. Meanwhile, JD will report numbers on Thursday; our Weekly US Earnings Estimates sheet can be accessed here.


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  PREVIEW - US CPI (13:30BST/08:30EDT): Headline CPI is seen rising +0.4% M/M in April, picking up from the 0.1% M/M pace in March; the annual measure is seen unchanged at 5.0%. Core inflation is seen rising 0.4% M/M in April, matching the rate of growth seen in March, while the annual measure of core inflation is seen easing a touch to 5.5% Y/Y (prev. 5.6%). JPMorgan and Goldman Sachs both think that If inflation is lower than expected on Wednesday, US stocks could rally if the data is lower than expected as traders will bet that the Fed will then stop rate hikes; if the annual rate of headline inflation comes in sub-5.0%, S&P could rally by at least 0.5% GS said, while any reading above 5.9% could drag stocks lower by at least 2%, writing that “the cooler the data the better for stocks right now.” Meanwhile, JPMorgan thinks that the most likely scenario is for CPI to print between 5.0-5.2%, which could see the S&P 500 rise by 0.5-0.75%; on the other side, it thinks that if inflation comes in above 5.5%, stocks could slide by more than 3.0%. This week, the influential NY Fed President Williams (who is also the FOMC Vice Chair) said that although the Fed had made significant progress in taking action to lower the high levels of inflation, it was too soon to say if the Fed is done with rate hikes, adding that policymakers would not hesitate to act if further action was required. Ahead of the data, money markets are suggesting that rates have already peaked, and are pricing around 63bps of cuts (implying two 25bps rate cuts, and a decent chance of a third) by the end of this year. Williams, however, said the Fed must keep a restrictive stance of policy in place for quite some time to make sure that inflation does come down to the 2% target, and in his baseline view, does not see any reason to cut interest rates this year.

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