EUROPEAN EQUITY UPDATE: Constructive Chinese data boosts China-exposed sectors while Arm continues gaining in the pre-market

Analysis details (10:10)

• European equities (Eurostoxx50 +0.8%) are trading on the front foot following a mostly positive handover from APAC overnight, with gains extending on optimism from Chinese data overnight, and that the ECB will be done with rate hikes. However, it is important to note that overnight an ECB source piece suggested that several of the ECB's more hawkish rate-setters believe that rates could rise again in December, under the scenario of hot wages and inflation. Throughout the session several ECB speakers have given their thoughts on the current rates, with ECB’s de Guindos (Dove) suggesting current rates at this level for some time is enough to tame CPI, with Muller (Hawk) adding that no additional hikes in expected in the coming months, though higher inflation could merit a future hike, largely in-line with the ECB sources piece overnight. As a reminder, today is Quad Witching which may inspire some choppy trade throughout today's session.


• Asia-Pac stocks traded higher for most of the session as the region took impetus from global peers after risk sentiment was fuelled by strong US data, a dovish ECB rate hike and the PBoC's RRR cut, while the region was also lifted by better-than-expected Chinese activity data. ASX 200 (+1.3%) was boosted with miners leading the advances seen across all sectors following the reserve ratio cut in China which is expected to release over CNY 500bln of liquidity for Australia’s largest trading partner and with recent comments from RBA watcher McCrann that there will likely be no more rate hikes. Nikkei 225 (+1.1%) extended its gains amid notable outperformance in power companies and with SoftBank boosted after shares in its Arm unit climbed 25% in its US debut. Hang Seng (+1.1%) and Shanghai (-0.3%) were initially underpinned by the encouraging Chinese activity data in which Industrial Production and Retail Sales both topped forecasts, while attention was also on the PBoC which recently cut the RRR but maintained its 1-year MLF rate at 2.50%. Although, Shanghai pared back much of its earlier gains and entered negative territory later in the session, possibly as the Chinese NBS noted that domestic demand remained insufficient, with traders also citing ongoing property woes in the region. On the growth front, Goldman Sachs maintained its GDP growth forecast of 4.9% YY, whilst several other banks upgraded their forecasts for the region overnight.


• US equity futures (ES +0.1%, NQ -0.1%, RTY +0.2%) are trading flat/mixed as they hover around the unchanged level, seemingly taking a breather following a modest rally in the prior session. In terms of stock specifics, Lockheed Martin (LMT) and Northrup Grumman (NOC) are facing sanctions from China for supplying weapons to Taiwan, though the pair seem to be fairly unreactive (flat pre-market) in light of the news. As for Auto Names, Ford (F) and General Motors (GM) are down around 2% in pre-market, amid the start of UAW union strikes, with Ford noting a lack of progress on negotiation talks. Meanwhile, following its Blockbuster IPO, Arm (ARM) continues with strength in pre-market trade (+8.4%) after notching gains of 25% yesterday.


• In this week’s BofA flow show report, stocks saw inflows of USD 25.3bln, cash of USD 28.9bln and bonds 4bln. Taking a deeper look, equities saw the biggest weekly inflow since March 2022, with a growing consensus that a soft landing is looking more likely. As for geographical flows, the US saw inflows of USD 26.4bln, Japan USD 0.2bln, whilst Europe experienced outflows of USD 1.4bln (27th week).


• Equity sectors in Europe are mostly in the green with Consumer Products and Services the major outperformer, propped up Luxury names. Kering (+2.5%), LVMH (+3.1%) and Hermes (+1.7%) are all extending gains, amid optimism in China following the constructive Chinese activity data overnight. This has underpinned much of the European session today, with Basic Resources also a top performer among the sectors amid price action in the metals complex from the aforementioned Chinese metrics. On the downside, Real Estate and Technology are the only sectors in the red, with the former hampered by Unibail (-1.4%), which was reiterated with Underweight at JP Morgan. As for individual movers, Stellantis (+0.6%) has been able to shrug off the initial pressure which emanated from the start of the UAW strikes. The best-performing stock in the Stoxx600 is Games Workshop (+10.3%), following a strong trading update. As for chip names, ASM International (-4.8%) and ASML (-2.4%) extend on losses likely amid sources suggested TSMC (2330 TT/TSM) reportedly told vendors to delay chip equipment delivery, according to Reuters sources, citing nervousness on customer demand, although suppliers currently expect the delays to be short term.

15 Sep 2023 - 10:10- Research Sheet- Source: Newsquawk