EUROPEAN EQUITY OPEN: Stocks tilt lower after the open as Germany enters a technical recession and US debt ceiling concerns continue to linger; semis supported after NVDA results

OVERNIGHT: Stocks on Wall Street fell as debt ceiling talks once again failed to yield a breakthrough, while the rising risk of default prompted Fitch Ratings to place the US on rating watch negative (see below for our recap); the FOMC minutes were in keeping with recent commentary made by officials (our recap is below); afterhours, Nvidia (NVDA) earnings were solid, seeing the company’s share surge over 20%, and supporting the Nasdaq-100 index, where it holds a 5.5% weight. Our US wrap is here. Asian stocks traded mostly lower with the region cautious following the losses on Wall St. Aussie shares weakened as the commodity-related sectors led broad declines, while sentiment was also dampened on news that households are set to pay hundreds of dollars more each year after the energy regulator approved an increase of up to 25% in electricity bills. Japanese stocks saw upside capped in the absence of any major positive drivers or Tier-1 data releases. South Korean shares were subdued after the BoK rate decision, where rates were left unchanged, but six of the seven board members kept the door open for one more hike. Our APAC wrap is here. 

EUROPEAN OPEN: European shares have tilted lower after the open; Stellar earnings update from US-listed Nvidia (NVDA) is supporting sentiment among some of the bloc’s chipmakers (ASM, ASML, Be Semi, Infineon, Siltronic). But the fiscal circus in Washington continues, and despite sides remaining optimistic, rating agency Fitch is more cautious. A detailed look at German GDP growth in Q1 saw the headline revised to -0.2% Y/Y (exp. 0.2%), bringing some economic concerns to the fore: ING notes that with the quarterly measure printing -0.3% Q/Q, the data confirms that the German economy contracted in the last two quarters, and is officially in a technical recession. Meanwhile, German GfK Consumer Sentiment improved slightly to -24.2 in June (exp. -24.0, prev. -25.8). In the UK, Ofgem sets the energy price cap for July-September at GBP 2,074 (prev. 3280); the regulator added that, in the medium-term, the UK was unlikely to see prices return to pre-energy crisis levels. In France, data showed the manufacturing business climate easing to 99 in May (exp. 101.0, prev. 101.0).

STOCK SPECIFICS: Chip Names will note that Nvidia (NVDA) surged after the US close following solid earnings, and its rise is supporting the Nasdaq-100 index given its 5.5% weighting. Elsewhere in tech, US District Court has dismissed a securities claim against Ericsson (ERICB SS). Energy Names will note remarks from Russia Deputy PM who does not see new steps being taken at the June 4th OPEC+ meeting, and sees Brent crude prices above USD 80/bbl by the end of this year. Aker BP (AKERBP NO) announced a significant oil discovery near Yggdrasil, with a prelim estimate for a GRV between 40-90mln BOE. Eni (ENI IM) and Sonangol are to expand cooperation in decarbonisation and sustainable energy transition areas. In real estate, Adler Group (ADJ GY) Rental EBITDA declined, but it confirmed FY guidance. In industrials, Dassault Aviation (AM FP) to reduce share capital by cancelling 0.67% of share capital. In materials, Antofagasta's (ANTO LN) Centinela mine supervisory union accepted contract negotiations in order to avoid strike action. Johnson Matthey (JMAT LN) FY results in-line with expectations. In financials, LSE (LSEG LN) CFO Manz to step down at the end of her 12-month notice period in May 2024. Generali (G IM) reported upbeat results and confirms targets. In healthcare, EMA accepts Novartis' (NOVN SW) Sandoz marketing authorisation application for proposed biosimilar denosumab. In communications, Cineworld (CINE LN) gave a Chapter 11 update, now expects to emerge from Chapter 11 in July 2023. In consumer sectors, Tate & Lyle (TATE LN) sees annual profits jump 22%. FTSE 100 ex-divs: Coca-Cola (CCH LN), DCC (DCC LN), Imperial Brands (IMB LN), Intertek (ITRK LN), Kingfisher (KGF), Whitbread (WTB LN). Our full European equity specific briefings for May 25th can be found here and here.

TODAY’S AGENDA:

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  EUROPEAN DATA/SPEAKERS: ECB's de Guindos (Dovish) will present the central bank's 2022 Annual Report; we'll also get remarks from ECB chief economist Lane (Dove), Wunsch (Hawkish), Makhlouf (Neutral) and Vujcic (Neutral). From the UK, we'll get CBI Distributive Trades. The CBRT is expected to keep rates unchanged at 8.50%, while South Africa is likely to lift rates 25bps to 8.00%. BoEs Haskel (Hawkish) will speak at the Peterson Institute. Riksbank's Thedeen will speak again on monetary policy and financial stability. On the supply front, Italy will sell between EUR 2.25-2.75bln of 2025 debt.


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  NORTH AMERICAN DATA/SPEAKERS: Weekly initial jobless claims, and continuing claims (the latter coincides with the BLS jobs data survey window). A second look at US GDP in Q1 will be eyed to see if it is revised up, given the constructive tone of US macro data releases recently. Even though the data is for Q1, analysts say that upward revisions could reinforce recent arguments that the US economy is more resilient than was feared at the start of the year. Elsewhere, the Chicago Fed's National Activity Index, and Kansas City Fed monthly activity metrics are due. On the speaker's slate, Fed's Barkin (non-Voter, Neutral) speaks in Virginia, while Fed's Collins (non-Voter, Neutral) will speak at the Rhode Island Community College.


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  CORPORATE EARNINGS: Today's slate includes MDT, BBY, DLTR, RL, ADSK, WDAY, MRVL, ULTA, COST, and GPS. The Daily US Earnings Estimates note is here.


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  ENERGY: NatGas inventories likely rise 100BCF this week (prev. 99BCF), data released at 10:30EDT is expected to show.


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  RECAP - US DEBT CEILING: House Speaker McCarthy remains optimistic about the prospects of reaching a deal to avoid default, and believes an agreement is possible before June 1st. But analysts remain concerned: after the close, Fitch Ratings placed US on ratings watch negative, citing debt ceiling brinkmanship as X-Date approaches, though the CRA still expects a resolution before June 1st. The White House said Fitch's updated reinforced the need for Congress to act quickly to pass a bipartisan agreement. Treasury Secretary Yellen reiterated her stark warnings the consequences of failing to reach a deal. US House Leader Scalise confirmed the planned Memorial Day weekend recess, but said debt ceiling talks will continue, and lawmakers should be prepared to return to Washington within 24 hours if a deal is reached. Members would have 72 hours to review any debt ceiling bill. Other reports said Republican leadership was reportedly optimistic about debt limit negotiations after days of slow progress, according to some reports.


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  RECAP - FOMC MINUTES: Whilst Fed policymakers agreed "the extent to which additional increases in the target range may be appropriate after this meeting had become less certain," which resulted in a tweak to its statement guidance, "some" said that "based on their expectations that progress in returning inflation to 2% could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings." "Some" thought more hikes would be needed, "several... noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary," whilst "many" recognised "the need for optionality." On the fiscal circus in Washington, officials had "concerns that the statutory limit on federal debt might not be raised in a timely manner, threatening significant disruptions to the financial system and tighter financial conditions that weaken the economy." Analysts said that the minutes were in fitting with more recent Fed commentary, and has revealed mixed views on interest rate hikes. Our full recap is here.

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