EUROPEAN EQUITY UPDATE: Cautious trade across equities as the clock ticks down to tomorrow’s ECB

Analysis details (10:00)

Equities in Europe commenced the mid-week session mostly higher, but risk appetite has since deteriorated with sentiment now cautious as the region eyes tomorrow's ECB, with either a 25bps or 50bps on the cards alongside the unveiling of the anti-fragmentation tool (full Newsquawk preview available in the Research Suite). Ahead of the meeting, investors are also mindful of the political instability in Italy, with PM Draghi having updated the Senate before a five-hour debate – a confidence vote is to take place following this (Newsquawk analysis is available on the headline feed). US equity futures are moving between gains and losses within a tight range with no standout performers across the main contracts. Earnings season is picking up in pace in both Europe and the US - Netflix (+7.0% pre-market) was bolstered post-earnings, with the loss of almost 1mln subscribers being framed as “better-than-feared”. Focus on the earnings front will primarily be on Wall Street-darling Tesla (+2.0% pre-market) due to report after the bell. From a more macro standpoint, BofA’s recent Global Survey suggested investors are in “full capitulation,” with separate desks implying full capitulation presents a buying opportunity - “The previous two times that the fund management community went overweight bonds — in the wake of the 2009 crisis, and during the first Covid lockdowns in 2020 — also turned out to be historically great times to go long in stocks.”, according to Bloomberg’s Authers. However, analysts at Berenberg remain pessimistic and believe that the full stock capitulation is still to come – “Longer-term equity sentiment indicator is at extreme pessimistic levels, suggesting upside on a longer horizon of 12 months or more… In the short term, though, there may be further downside before a tactical capitulation level is reached”, the desk said. Back in Europe, the equity picture is now mixed with the periphery markets underperforming - FTSE MIB (-0.2%) and IBEX 35 (-0.4%) hold onto modest losses. The Dutch AEX (Unch) was an early underperformer as ASML (-1.7%) opened lower by as much as 3.5% despite beating on revenue and EPS as the group cut its guidance. The Eurostoxx 50 sees its upside hampered as ASML is the largest weighted stock in the index (~8% weighting). Sectors are mostly firmer and have reconfigured since the cash open with no overarching theme aside from caution/indecision. In terms of individual movers, Handelsblatt reported that the German government is planning to take a 30% stake in Uniper (+10.5%) – at the top-end of the 15-30% flagged by prior reports. KION (+2.0%) is firmer as German press flagged possible talks of a Chinese IPO - yesterday it was reported that China is said to be courting foreign firms in a cross-border listing drive, according to Bloomberg, with KION said to be among the firms mulling a Chinese listing. Finally, Royal Mail (-5.5%) slips after warning it is currently losing GBP 1mln per day. Co. said it was unable to reduce costs quickly enough and will be breaking even for adj. operating profit for FY 22/23, excluding industrial action – note that strikes were announced yesterday.

20 Jul 2022 - 09:59- EquitiesEconomic Commentary- Source: Newsquawk