EUROPEAN EQUITY UPDATE: Choppy trade for stocks as early optimism fades

Analysis details (09:30)

European equities (Eurostoxx 50 -0.1%, Stoxx 600 -0.2%) saw a choppy start to the session after early upside proved to be fleeting. European equity futures saw a pick-up ahead of the cash open as traders reacted to reports in the FT suggesting that the BoE signalled to lenders that it is prepared to prolong bond purchases. However, this optimism eventually faded after a BoE spokesperson confirmed that bond purchases will cease this Friday. Elsewhere, global macro drivers remain the same as investors assess global monetary tightening ambitions and tensions continue to escalate between Russia and Ukraine. Stateside, US futures trade on a firmer footing (ES +0.6%, NQ +0.8%, RTY +0.7%) with the e-mini S&P back above 3600 as indices attempt to claw back some of the lost ground yesterday. On the macro front, focus in the US today will be on the release of the FOMC’s September minutes which will be eyed for the discussion around the dot plot and at what point the terminal rate should be reached in 2023. In terms of desk views, RBC has lowered its S&P 500 year-end target from 4200 to 3800 given the weak economic backdrop; introduces a 2023 target of 4,100. Elsewhere, Citi’s chief global equity strategist says he is overweight the tech sector, is positive on financials which he expects to benefit from higher margins and is underweight industrials and consumer discretionary. Ahead of European earnings season, analysts at Barclays note that P/E has de-rated, estimates have been lowered and weaker FX helps the EU & UK, adding that guidance will be cautious with margins and cash flow vulnerable to slowing demand, rising inventories and high inflation. Barclays also notes that cyclicals look attractive, but so long as central banks dampen growth, earnings risk may prevail. Sectors in Europe are mostly lower with underperformance in Banks, Real Estate and Insurance names amid ongoing financial stability concerns amid the BoE’s plan to halt bond purchases by the end of the week. There are also a few stock-specific factors at play with Credit Suisse (-3.3%) a laggard within the banking space following reports the Co. will face a US tax probe, whilst a lawyer said the bank partook in a “conspiracy network” focused on rigging the foreign exchange market. UK homebuilders are on the backfoot after Barratt Developments (-7.9%) cautioned that demand for new-build homes is cooling amid economic growth concerns and elevated borrowing costs. Phillips (-7.8%) is a notable laggard in the region after announcing a EUR 1.3bln goodwill impairment charge alongside Q3 earnings. On a more positive footing, LVMH (+2.2%) shares are firmer and lifting the consumer products sector after Q3 sales exceeded expectations as demand for luxury products remained resilient.

12 Oct 2022 - 09:30- Fixed IncomeResearch Sheet- Source: Newsquawk