EUROPEAN EQUITY UPDATE: Choppy trade with a downside bias as Europe returns from Easter break

Analysis details (09:57)

Major bourses in Europe resumed trade from the long weekend on a softer footing (Euro Stoxx 50 -0.6%; Stoxx 600 -0.8%), and with price action choppy following Wall Street’s negative bias yesterday and APAC’s mixed lead overnight. The region also catches up to the unconstructive Russia-Ukraine developments over the Easter break – whereby Ukrainian President Zelensky said Russia has launched an assault to seize the eastern Donbas region, whilst diplomatic means are seemingly exhausted for now. US equity futures are mixed trade choppily with the NQ recently pulling back in tandem with the rise yields (ES Unch, NQ -0.2%, YM +0.1%, RTY +0.2%) – the contracts experienced some early downticks as Europe had a chance to react to Fed Bullard’s hawkish commentary in which he posited inflation is far too high for comfort and he does not rule out a 75bps rate hike, albeit that is not the base case. Sticking with the US, Halliburton, Johnson & Johnson, Netflix & IBM are poised to report their metrics today. Analysts at JPM believe stocks will be underpinned by earnings growth (albeit at a reduced rate) – “For Q1, activity momentum has generally softened, as seen in a dip in global PMIs, but not all dataflow is weaker, and is still consistent with growing earnings. At the same time, the hurdle rate is low, when Energy is taken out. Ex Energy, IBES projects -2% y/y Q1 EPS growth rate in the US and +1% y/y in Eurozone. Most we speak to expect warnings so, even if the actual results are mixed, stocks may not be penalized further.” Meanwhile, Goldman Sachs stated stable stocks with low share price and earnings growth volatility typically perform better against the backdrop of slowing economic growth and tightening financial conditions. Elsewhere, BofA strategists, citing EPFR global data, noted that equities last week had the largest outflow since December, with almost USD 13bln exiting the asset. The regional breakdown indicated the largest outflows for the US since December, the ninth straight week of outflows for Europe, the first inflow in five weeks for Japan and the third week of inflows of EMs. Eurozone bourses are posting relatively broad-based losses although the FTSE MIB (-1.2%) underperforms amid a myriad of blue-chip ex-dividend stocks. The FTSE 100 (-0.2%) sees losses cushioned by the sustained outperformance across Energy and Basic Resources, whilst Banks also climb up the ranks. Sectors portray a mild anti-defensive narrative at the time of writing as Health Care, Media, Food & Beverages, Consumer Products and Telecom all reside at the bottom of the pile. In terms of individual movers, Rolls-Royce (+2.0%) is boosted by news that the design for its nuclear reactors could receive the UK green-light by mid-2024, according to a chairman cited by Reuters, whilst The Telegraph reported that British-designed fighter jet Aeralis has won the backing of its partner Rolls-Royce with regards to pilot training in jets that could replace the RAF's current fleet. Rolls-Royce has agreed to supply the engines for the planes. Aeralis also estimates there is a market for around 5,500 of its jets, with a potential value of GBP 150bln.

19 Apr 2022 - 09:56- EquitiesResearch Sheet- Source: Newsquawk