EUROPEAN EQUITY UPDATE: Cautious gains as financial stability risks remain front of mind

Analysis details (09:18)

• European equities (Eurostoxx 50 +0.1%) are posting tentative gains in what remains a fragile risk environment given concerns over financial stability risks. As it stands, a market-based indicator of Euro Area banking stress is at its highest level since mid-July 2022.


• On European banks, Goldman Sachs notes that there is a limited risk of direct contagion for the European banking sector given that “European banks’ exposure to US deposits is low, and the Euro area and UK banking systems are well capitalised with ample liquidity”. That said, GS notes that “US financial stress could lead to European banks curtailing lending to the real economy and therefore tighten broader financial conditions”.


• Nonetheless, the sector remains on the backfoot with Credit Suisse (-3%) a notable laggard within the group after noting that it found material weakness in its reporting for 2021 and 2022 and stating that outflows have “not yet reversed”.


• US equity futures (ES +0.2%, NQ +0.2%, RTY +0.2%) have been granted some reprieve in trade thus far but unable to claw back much of the lost ground since last Thursday. Regional Banks are firmer in the pre-market with First Republic Bank (FRC) and Western Alliance Bancorporation (WAL) up 22.5% and 16% respectively, but ultimately still showing heavy losses since late last week.


• The key catalyst for today (in addition to the headline risk around the financial health of US banks) is the consumer prices data for February, which is due for release at 12:30GMT/08:30EST; the consensus looks for a cooling in the annual headline and core rates of inflation. Any significant cooling may offer the FOMC greater scope to pause rate hikes at the March 22nd meeting amid concerns around US financial stability.


• Equity sectors in Europe are mixed with Real Estate names the standout outperformer amid the more favourable rate environment for the industry, whilst Energy names lag alongside declines in underlying crude prices. Autos are also on the backfoot with Volkswagen (-3.5%) near the foot of the Stoxx 600 after announcing a USD 193bln five year plan to attain its EV targets. Finally, a day after it purchases SVB’s UK arm, HSBC (-1.7%) shares are on the backfoot with reports noting that it is planning to inject GBP 2bln of liquidity into the Co.

14 Mar 2023 - 09:18- Research Sheet- Source: Newsquawk