EUROPEAN EQUITY UPDATE: Choppy and subdued overall, although the CAC cheers Macron’s first round win

Analysis details (10:23)

It has been a choppy start to the week for equity markets as European cash and futures swung between gains and losses throughout the first hour of cash trade before stabilising in the red (Euro Stoxx -0.7%; Stoxx 600 -0.5%). The cautious tone from APAC reverberated to Europe but seemingly the price action in Western equity assets has been in lockstep with bond yields. A modest pop higher in stocks was seen around the same time the US 10yr yield dipped under 2.75%, although this was shortly followed by losses which coincided with comments from the Ukrainian President - who suggested Russia is concentrating tens of thousands of soldiers for its next offensive. US equity futures see slightly more pronounced losses vs their European counterparts, and the NQ (-1.0%) lags the ES (-0.6%) and peers amid yield play. In terms of analyst commentary on the US stock market, Barclays suggests growth stocks have more upside in the short term “as the traditional correlation between growth and real rates has broken down amid more optimism about economic growth”, but macro tail-risks remain and can dampen the outlook for growth in the medium term. In Europe, bourses are currently mostly lower but the CAC 40 (+0.1%) has been outperforming the region after the market-friendly incumbent Macron won the first round of the French Presidential elections, whilst the second second-round polls (Ipsos and Opinionway) showed Macron would win with 54% vs Le Pen at 46%. French stocks have welcomed the development as the pro-EU candidate's tax policy also involves some EUR 7bln in corporate tax cuts. French banks have seen tailwinds from the first round results and the rise in yields, whilst SocGen (+5%) resides at the top of the CAC 40 as investors also cheer the firm’s exit from Russia. Analysts at JPM delve deeper into the French election’s impact on markets: “If Le Pen were to score a surprise victory, investor sentiment would take a hit, in their view, given likely increased uncertainty over the cohesion of the Eurozone… Macron remains the more market-friendly outcome”. A win by Macron would be broadly positive for French utilities and banks, whilst consumer-related stocks should benefit either way amid consumer-friendly policies, JPM says. Meanwhile, the desk has also reiterated their UK equity call and believes the UK is trading near record-cheap vs other markets: “Interestingly, UK equities are beating global this year by 6% even if one fully takes out Energy and Mining”, JPM says. Back to trade, sectors are mostly negative except for the yield-induced banking and insurance names, whilst Tech lags. Overall, sectors do not portray a particular theme aside from yields. In terms of interesting individual movers, Nokian Tyres (-13%) slumped to the foot of the Stoxx 600 as the EU’s ban on tyre imports from Russia led to a profit warning. Elsewhere Twitter (-5%) is softer pre-market as Tesla CEO Musk will not be joining the Twitter board after all.

11 Apr 2022 - 10:22- EquitiesResearch Sheet- Source: Newsquawk