EUROPEAN EQUITY OPEN: Stocks start higher but on course to print small weekly losses; UK GDP data disappoints

OVERNIGHT: US stocks were mixed on Thursday, with outperformance in Nasdaq led by Communication names, with Google (GOOGL) continuing its recent rally. But gains were not broad, and the Russell, Dow, and S&P closed lower, while sectors were predominantly red (only upside in Communication, Discretionary, and Staples). The Regional banking ETF finished lower on fresh deposit concerns. Our US wrap is here. APAC stocks were mostly lower; Aussie shares were constrained by weakness in the energy and mining sectors after the recent pressure in underlying commodity prices. Japanese shares outperformed, driven by earnings results. China shares were indecisive as talks between US National Security Adviser Sullivan and China's top diplomat Wang Yi provided some encouragement towards a potential Biden-Xi call, though participants also digested weaker-than-expected Chinese loans and financing data. APAC wrap here.

EUROPEAN OPEN: European indices are starting the last trading day of the week higher, although the broad Stoxx 600 index of shares as well as the narrow Euro Stoxx 50 index of blue chips are both currently on a course to print small weekly losses (would be the third week in the red). GDP data out this morning from the UK disappointed expectations (see our review, below) although IP was more constructive. Final French HICP data for April was unrevised. We’ve seen a few notable earnings reports in the financials sector, with Allianz (ALV GY) and SocGen (GLE FP) topping expectations; M&A has also been in focus, with Software AG (SOW GY) coming under fire from a key shareholder on its handling of its sale process, while THG Plc (THG LN) terminated takeover talks with Apollo; we highlight the main stock news below. Elsewhere, a meeting that was set to take place between US President Biden and Congressional leaders on the debt ceiling has been postponed (see below).

STOCK SPECIFICS: In M&A, Software AG (SOW GY) key shareholder Schroders said the offer from Silver Lake materially undervalues the company, and criticised Software's handling of the sale process. THG (THG LN) has terminated takeover discussions with Apollo (APO), deciding that the deal was not in the internet retailer's best interest; THG reiterated expectations to deliver positive FCF in FY24. In financials, UBS (UBSG SW) is prioritising integrating Credit Suisse’s (CSGN SW) investment bank and an acceleration of cost reductions. Allianz (ALV GY) posts a profit after taking a large charge a year ago, confirms FY23 guidance. Societe Generale (GLE FP) earnings top estimates on solid bond trading, reduces FY23 cost of risk guidance. In industrials, Ferrovial (FER SM) core earnings driven higher after decent North America revenues. In consumer cyclicals, Richemont (CFR SW) FY sales surged to all-time highs, and it launches a new buyback. Pirelli (PIRC IM) operating profits rise, confirms FY view. Our full European equity briefings for May 12th are here and here.

REVIEW - UK GDP: Data out of the UK showed GDP output slipped in March by 0.3% against expectations of an unchanged reading; the 3-month/3-month estimate was 0.1% in March, as expected, while the annual gauge printed 0.3% Y/Y in March, short of the expected 0.4%; the prelim figure for Q1 came in at 0.2% Y/Y, in line with the consensus. The ONS said output was depressed by strikes, and it could not yet fully quantify its impact. The ONS also noted that GDP was now 0.1% higher than pre-pandemic levels from February 2020. For the quarter as a whole, the ONS said there had been no growth in household consumption in Q1, but there was a positive contribution from gross fixed capital formation. Pantheon Macroeconomics said the data highlights that the UK is still at the bottom of the G7 league table, and that support from rising investment will fade. Ahead, PM says the BoE's new forecast for GDP to hold steady in Q2 is in the right ballpark; "In Q3, households should be in a position to lead a recovery, given that consumer energy prices look set to fall by about 20% in July, and the rate of increase in other prices looks set to slow," it writes, "but with fiscal policy contractionary this year and most of the impact of the increase in Bank Rate still to permeate into the economy, we doubt the recovery will gather much momentum."

DAY AHEAD:

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


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  EUROPEAN DATA/SPEAKERS: There is not much left on today's European data slate; however, there will be speeches due from the ECB Vice President de Guindos (no text), the Riksbank's Jansson on monetary policy, and the BoE Chief Economist Pill speaking on the MPR.


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  US DEBT CEILING TALKS DELAYED: Fiscal talks between US President Biden and Congressional leaders that was scheduled for Friday has been postponed, the White House said, though added that staff will continue working and all the principals agreed to meet early next week. House Speaker McCarthy said postponing the debt ceiling meeting did not mean that debt talks have fallen apart, adding that leaders decided it was in the best interest to let staff meet again; McCarthy does not think there was enough progress for the leaders to get back together, but expects them to meet next week. Separately, Treasury Secretary Yellen will meet with top Wall Street bankers in Washington next week as the Biden administration and Republican leaders scramble to reach a deal to avoid a debt default, Politico reports; Yellen will speak with board members of the Bank Policy Institute, a lobbying group whose board is led by JPMorgan Chase CEO Jamie Dimon and includes Citigroup CEO Jane Fraser, to discuss the impasse over raising the government’s borrowing limit.


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  US DATA/SPEAKERS: Talks between US President Biden and Congressional leaders on the debt ceiling that were due to take place today have been pushed into next week, though sides have been framing the delay in a positive light as aides continue work. US import and export price data is due in the pre-market, where the former is seen rising 0.3% M/M, and the latter is seen rising 0.2%. The University of Michigan's prelim consumer sentiment survey for May will be released after the cash equity open; the signals on consumer inflation expectations has been mixed: the BLS data this week showed a cooling in inflation pressures, although the NY Fed survey at the beginning of the week showed consumer inflation expectations rising; it is worth noting that consumer inflation expectations tend to move more slowly, and always tend to be more pessimistic than market based measures. On the speaker's slate, Fed's Daly (non-voter) will make remarks, as will Fed's Bullard (non-voter). Voter Jefferson, who has been linked to the Fed Vice Chair role, will deliver further remarks; earlier in the week, Jefferson said that the banking system was "sound and resilient," banks have started to raise lending standards, and that is typical for where the US in the economic cycle. Meanwhile, Treasury Secretary Yellen will give further remarks on the side lines of the G7 meetings in Japan, where she is expected to continue urging Congress to resolve their fiscal differences and raise the debt limit.


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  ENERGY: Baker Hughes will release rig count data for the week at 1pm Eastern.


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  RATINGS: Today's credit ratings docket includes potential reviews from: Fitch on Italy's (BBB), Fitch on Sweden (AAA), and DBRS on the EU (AAA).

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