EUROPEAN EQUITY UPDATE: Cagey trade following last week’s solid showing

Analysis details (09:36)

• European equities (Eurostoxx 50 -0.1%) have kicked the session off without much in the way of firm direction after a strong performance last week and as macro updates for the region were light over the weekend. Today has seen the release of final Eurozone services and composite PMIs which were both unrevised from their flash prints of 47.8 and 46.5 respectively. The accompanying release noted “the rate of decrease in business activity accelerated since September and was the strongest since November 2020”. As an update on earnings season, Goldman Sachs says that over 50% of the companies it expects to include in its earnings tracker have reported and thus far Q3 results for the Stoxx 600 have come in line with expectations with the share of beats and misses broadly in line with long-term averages. That being said, GS observes that the “market continues to penalize negative surprises to a greater extent than usual”. The desk adds that “recent growth concerns and a mixed earnings season have weighed on STOXX 600 earnings revisions”.


• Analysts at JP Morgan have reiterated their call from October that “bond yields are likely in the process of peaking during Q4”. JPM says in the short-term that has been interpreted as a short-term positive for equities. That being said, the desk cautions that “equities will soon revert back to an unattractive risk-reward into year-end”, particularly if 2024 earnings projections begin to reset lower. JPM believes that pricing power is waning, profit margins are at risk and the slowdown in topline growth is set to continue. From a sector standpoint, the desk states that if bond yields are rolling over (as it suspects), defensives such as Utilities and Staples should receive a tailwind. Elsewhere, analysts reiterate their upgrade of the Real Estate sector and notes its lowered European Banks to underweight last week.


• APAC stocks traded higher across the board following the post-NFP tailwinds from Wall Street on Friday, with sentiment in the region also boosted by South Korea announcing a ban on stock short-selling which catapulted the KOSPI index to gains of 4% at one point. ASX 200 posted modest gains as the index is hindered by losses in heavyweight Energy and Mining sectors. Participants also look ahead to tomorrow’s RBA decision in which 35/39 analysts polled by Reuters expect a rate hike. Nikkei 225 remained comfortably above the 32,500 level and hit levels last seen at the end of September, with the Industrial sectors leading the gains. Hang Seng and Shanghai Comp conformed to the gains in the region with sentiment supported by weekend comments from the Chinese Premier who said China will soon release a plan to promote high-standard institutional opening up in the Shanghai Free Trade Zone.


• US equity futures (ES +0.2%, NQ +0.2%, RTY +0.1%) are trading modestly firmer, continuing the positive sentiment from Friday, post-NFP print. In terms of the week ahead, there will be several important data prints, including US Trade Balance (Sept), IBD/TIPP, IJC & UoM Consumer Survey. There will also be a number of Fed speakers throughout the week, with Chairman Powell, due to speak on Thursday. Back to today, the docket is light on the data front, though markets will keep an eye out for speak from Fed’s Cook (Voter, Neutral) at 16:00 BST / 11:00 EST, as well as the FOMC SLOOS later in the session. As for stock stories to be aware of, Tesla (TSLA, +2.5%) is to construct a EUR 25k EV at its plant in Gruenheide, Germany, according to Reuters citing sources. This is a long-awaited development for the Co., which had been previously announced by the CEO.


• Equity sectors in Europe are mixed with Travel & Leisure names top of the leaderboard thanks to post-earnings gains in Ryanair (+6.0%) which saw the Co. report stronger-than-expected net profits, increasing passenger traffic, strong demand heading into 2024 and is to pay a regular dividend for the first time; easyJet (+3.1%), Wizz Air (+3%) and IAG (+1%) are higher in sympathy. Elsewhere, Energy and Basic Resource names are both firmer on the session, whilst to the downside, Real Estate, Construction & Materials and Chemical names lag. Telecom Italia (-3.3%) have been in focus after fading opening gains following weekend reporting that its board approved KKR's EUR 18.8bln offer to acquire its network grid, which prompted the Co.’s top shareholder Vivendi to label the decision as “unlawful” and stated it will legally challenge it. Elsewhere, Melrose (+3.8%) shares are marching higher after signing a USD 5bln 30yr agreement with GE Aerospace. PostNL (-11.3%) shares are markedly lower on the session after Q3 results underwhelmed and the Co. stated that it expects FY23 key indicators at the low end of guided ranges.

06 Nov 2023 - 09:36- Research Sheet- Source: Newsquawk