EUROPEAN EQUITY UPDATE: Choppy trade in stocks are global markets return on month end

Analysis details (08:58)

• Stocks in Europe were off to a choppy start and swung between gains and losses throughout the early hours as volumes return from several regional holidays. There was a distinct lack of newsflow at the time, although participants are cognizant of month-end factors, whilst many traders also get the first chance to react to the US debt ceiling developments. To recap, US President Biden and House Speaker McCarthy have struck a deal over the debt ceiling - the agreement would avert a US default, suspend the debt ceiling until 1st January 2025, cap federal spending for the next two years, claw back unused COVID funds, hasten the permitting process for some energy projects, and include extra work requirements for food aid programmes. The plan now faces a push through Congress, where it will likely face objections from both sides of the aisle. Analysts at Goldman Sachs said that “reaching a deal between leaders had been the highest hurdle and this agreement eliminates most of the uncertainty regarding the impending debt limit deadline, though the legislation must still pass the House and Senate,” Goldman Sachs said, noting that the House is slated to vote Wednesday (May 31st) while the Senate could vote by Friday (June 2nd), though it would not be surprising to see procedural delays push the vote into the weekend. “Regardless, the chances that Congress allows the June 5th deadline to pass without action now appear very low, GS said, adding that the deal itself is expected to trim GDP spending by 0.1-0.2% annually in 2024 and 2025, but FY23's funding boost may keep overall discretionary spending slightly higher next year (Full Newsquawk Primer available here). US equity futures saw mild upside yesterday and overnight.


• There are several themes at play today aside from the US debt ceiling deal. Firstly, Spanish Flash CPI printed below forecasts and was the first look into the EZ inflation situation in May, while Spanish PM Sanchez also announced snap elections on the 23rd of July. “All told, the sharp decline in inflation in Spain this year is the mirror image of the rapid increase last year, both of which are due to the faster pass-through of wholesale energy prices to consumer prices than in most countries. With energy inflation likely to fall even further and the core rate on a downward trend, we expect headline inflation to reach 2% within a month or two. Inflation in the euro-zone as a whole should eventually follow a similar path, but we would not jump to any conclusions about the rate for May, data for which are due on Thursday.”, said CapEco.


• Elsewhere, the BoJ, FSA, and MoF are poised to meet at 09:30 BST/04:30ET and will likely discuss the erratic price action in the JPY. Sticking with APAC, the Chinese Yuan has also been continuously weakening amid woes surrounding the Chinese economy, while Hang Seng China Enterprises Index entered bear market territory which added to the jitters from the already cautious mood heading into tomorrow’s PMI data. Last but not least, in geopolitics, Russia launched a large drone attack on Kyiv over the weekend, while it was recently reported two residential buildings in the Russian capital Moscow were hit by drones, according to RIA. Moscow pointed the finger at Kyiv. Ahead, the week is packed with risk events including the ECB minutes, Germany CPI, ISM Manufacturing PMI, and US jobs report.


• Back in Europe, bourses are currently mixed as the tone seen in APAC reverberates into Europe (Euro Stoxx 50 Unch, Stoxx 600 Unch). Spain’s IBEX (+0.5%) is the relative outperformer after the regions CPI metrics, although Spanish PM Sanchez also announced snap elections after his Socialist party suffered a resounding defeat in local and regional elections on Sunday. Sectors are now mostly positive (vs mixed at the open), with Real Estate, Utilities, and Tech leading the gains while Healthcare, Energy, and Food & Beverages lag. In terms of individual movers for today, Rolls-Royce (-0.8%) and BAE Systems (-0.3%) are subdued amid reports India's CBI has filed a criminal complaint which accuses the Cos of engaging in corruption re. historic deals for the supply of fighter jets to India. Aroundtown (+3.7%) lift up the Real Estate sector following earnings. Daimler Trucks (+0.4%) benefits after signing and MoU with Toyota.

30 May 2023 - 08:58- Research Sheet- Source: Newsquawk