EUROPEAN EQUITY UPDATE: Chinese trade weighs, whilst Meloni squeezes Italian banks

Analysis details (09:20)

• European equities (Eurostoxx 50 -0.2%) trade on the backfoot with the FTSE MIB (-1.4%) the standout laggard in the region after Italian PM Meloni's cabinet approved a 40% windfall tax on banks, which has weighed heavily on domestic banking names such as Bper Banca (-7.6%), Finecobank (-7%), Intesa Sanpaolo (-6.8%), Banco BPM (-6.5%) and UniCredit (-5.4%). The broader mood in the region has been soured by Chinese trade metrics where imports slumped on subdued domestic demand, while export growth fell by the largest margin since the pandemic’s start. Asides from this, macro-specific developments are light for the region and therefore impetus is likely to be garnered from elsewhere.


• Asia-Pac stocks traded mixed after the early optimism following the positive lead from Wall St was soured as Chinese markets entered the fray, while the region also digested disappointing Chinese trade data. ASX 200 (Unch.) traded around flat with price action rangebound after mixed consumer sentiment and business confidence. Nikkei 225 (+0.3%) traded choppy, as it was initially lifted by a weaker currency and earnings release but was then capped by weak Chinese trade data. Hang Seng (-1.8%) and Shanghai Comp. (-0.3%) spooked markets as they entered the fray with the Hong Kong benchmark heavily pressured as tech and property stocks lead the broad declines across sectors, while sentiment was also not helped by the wider-than-expected contractions in Chinese exports and imports data.


• US equity futures (ES -0.3%, NQ -0.4%, RTY -0.5%) are trading lower, with the global macro mood soured after the Chinese trade data. Among the indices, the small-cap Russell 2000 is leading the losses, continuing its underperformance seen in yesterday's session. Further souring the mood, Moody’s downgraded several US banks including M&T's (MTB), Old National (ONB) and Associated Banc-Corp (ASB), amongst others. The rating agency also put; Bank of New York Mellon (BK), US Bancorp (USB), Truist (TFC), State Street (STT) and Northern Trust (NTRS) on review for a downgrade and stated that "many banks' Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital," adding that this came "as a mild US recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate portfolios”. Today’s US focus will be on Fed speak; 2023 voter Harker is due to give remarks, and traders will be looking to see if he thinks the Fed is now done with hikes, 2024 voter Barkin is also due to speak today. On the data slate, IBD/TIPP economic optimism data for the month will provide an early glimpse of how consumers are faring at the start of August, while traders will also be focussed on any price commentary within the report ahead of Thursday’s CPI release. Additionally, International Trade, Wholesale Sales & NFIB Business Optimism are also due.


• European equity sectors are mixed with underperformance in the Banking sector due to aforementioned softness in Italian banking names which also appears to have weighed on other European peers such as Commerzbank (-3%), Deutsche Bank (-1.9%) and BNP Paribas (-1.9%) to name a few. Elsewhere, Basic Resource names are also suffering heavy losses following Chinese trade metrics and poorly received H1 results from Glencore (-3.5%) which saw the Co. fall short on adj. EBITDA and net profits. To the upside, Utilities outperform, followed by Food, Beverage & Tobacco and Personal Care, Drug and Grocery names. In terms of other stock-specific updates, IHG (+2%) shares have been boosted by H1 earnings with accompanying commentary noting “there have been no broad signs of consumer price resistance or cooling of leisure demand to date”. On the downside, Abrdn (-9.3%) is the worst performer in the Stoxx 600 with H1 results impacted by client outflows which have seen Co. assets reach a record low. Finally, Bayer (-0.9%) is trading lower-post earnings after the Co. noted a EUR 2.49bln extraordinary expense related to an impairment in its Crop Science division.

08 Aug 2023 - 09:20- EquitiesResearch Sheet- Source: Newsquawk