EUROPEAN EQUITY UPDATE: Cautious gains across stocks ahead of a risk-packed week

Analysis details (09:50)

• Stocks in Europe kicked off the session modestly subdued but have since trimmed losses and trade with an upward tilt at the time of writing. Macro news flow has been light for the complex but sentiment follows on what turned out to be a mixed APAC session. To recap, Asia-Pac stocks were positive for most of the overnight session, albeit with gains capped for many of the regional bourses as participants digested softer-than-expected inflation data from China. Hang Seng and Shanghai Composite traded higher with the Hong Kong benchmark boosted by the tech sector amid hopes that China could be nearing the end of the tech crackdown. Conversely, the gains in the mainland were capped after the latest Chinese inflation data missed estimates with zero consumer inflation in the mainland and a deeper contraction in factory gate prices, while there were recent comments from Treasury Secretary Yellen that they made some progress during her trip to Beijing and that ties were put on a super footing, although expectations had been set at a low level with the objective of her visit was to establish and deepen ties to the new Chinese economic team and reduce the risk of misunderstanding.


• US equity futures are subdued across the board with the RTY (-0.4%) the current laggard after massively outperforming on Friday, with the R2K ending Friday higher by 1.2% vs the SPX -0.3%. Citi strategists have revised their rating of US stocks from overweight to neutral, following their significant outperformance and ongoing recession risks. The team has also downgraded global tech stocks due to potential weakness in large-scale growth, but remains open to purchases during market dips. They favour growth and selective cyclicals at the sector level and have upgraded materials and industrials to overweight. Europe has been upgraded to overweight due to its record discount compared to the US, and potential benefits from a weaker dollar and stimulus from China. However, UK stocks have been downgraded to neutral due to a lack of exposure to growth stocks and the potential hindrance of a stronger pound. Emerging markets have been upgraded to overweight due to an attractive risk/reward profile. While a modest slowdown in earnings per share is anticipated, risks are more balanced than before, with tighter credit conditions and central bank liquidity as key challenges.


• Back in Europe, bourses post cautious gains across the board (Euro Stoxx 50 +0.3%; Stoxx 600 +0.1%). Little reaction was seen to a deeper-than-expected deterioration in the EZ Sentix Index. The upside is limited ahead of key risk events this week including US CPI alongside a slew of Fed speakers, including Fed’s Barr, Daly, Mester & Bostic just today. Sectors are mostly positive and sentiment has improved from the defensive tone seen at the cash open. Sectors do not portray a particular bias at the time of writing. Energy leads the gains following last week’s rise in crude prices. Basic resources sit as the laggard as China’s inflation metrics underscored a sluggish economy, with base metals taking a hit. In terms of some individual movers, Ocado (-2.5%) sits towards the bottom of the Stoxx 600 after Marks & Spencer CEO said he is "not happy" with the performance of JV partner Ocado.

10 Jul 2023 - 09:50- Research Sheet- Source: Newsquawk