EUROPEAN EQUITY UPDATE: Bourses on a firmer footing but off best levels, with news flow slow in a summer session

Analysis details (10:03)

Equities in Europe kicked off the session on the front foot following a mixed and choppy APAC lead after traders in the region digested the US jobs report and its potential implications, ahead of the US and Chinese inflation metrics this week. In terms of broader equity commentary, Goldman Sachs suggests the macro-economic outlook is deteriorating, with firms set to face continued input cost pressures. Thus, the bank forecasts a 2023 margin contraction in every sector – led by materials, energy, and healthcare, and cut their 2023 SPX EPS growth to 3% from 5% but maintained the 8% 2022 forecast. The desk also maintained its year-end SPX target of 4,300. Morgan Stanley, meanwhile, believes that the next leg lower in equities will be in September as company profits see the negative effects of falling inflation – the desk believes that estimates for margin expansion in 2023 are “unrealistic” amid “sticky cost pressures and falling demand”. With valuations this stretched, we think the best part of the rally is over,” MS’ Wilson said. Conversely, JP Morgan is more optimistic and sees the risk-reward for equities improving, with the desk suggesting valuations are looking attractive; the bank highlighted a total of 10 reasons for upside in equities - click here for the full list. Back to the session, cash bourses in Europe remain firmer across the board, but off best levels (Euro Stoxx 50 +0.6%; Stoxx 600 +0.5%). The Italian FTSE MIB (+0.1%) sees gains to a lesser extent amid the political limbo with Italy’s centrist Azione party is to abandon the centre-left alliance with the Democratic Party just days after agreeing to an alliance, whilst Moody’s also cut its outlook on Italy to “negative” from “stable”. Aside from that, the European performance is relatively broad-based with a lack of fresh fundamental drivers throughout the morning thus far. Sectors are mostly firmer with no overall theme. Tech and Utilities stand as the current outperformers whilst Banks, Travel & Leisure, and Energy reside on the other end of the spectrum. In terms of individual movers, Siemens Energy (-3.0%) declined post-earnings after missing expectations on Revenue and Adj. EBITDA, whilst adjusting its guidance lower - FY net loss is now seen exceeding the prior year's loss. Finally, Veolia Environnement (+1.8%) is supported after announcing the sale of its Suez UK unit for EUR 2.4bln to Macquarie.

08 Aug 2022 - 10:02- Research Sheet- Source: Newsquawk

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