EUROPEAN EQUITY UPDATE: Core markets are choppy but the periphery feels greater pain

Analysis details (10:06)

A choppy morning in the equity space as Europe swung between gains and losses in the first hour of trade before seeing some stability (Euro Stoxx 50 +0.2%; Stoxx 600 +0.3%). The region opened with broad-based gains following a relatively mixed APAC handover which saw China’s return to the market from its Lunar New Year break. US equity futures meanwhile experienced a similar choppy early-session and hold a downside bias with clear underperformance seen in the RTY (-0.8%) vs the ES (-0.2%), YM (-0.2%), and NQ (-0.1%). Analysts at JPM suggest the current stage of the cycle should continue to allow upside in equities. “We look for more gains in earnings, bottoming out in China activity, after being cautious on the space last year, and expect the Fed not to turn ever more hawkish, relative to what is currently priced in.” On that note, the Chinese Caixin PMIs overnight highlighted that both the Chinese manufacturing and services sectors weakened in January, whilst input costs in the month rose solidly and selling price inflation accelerated to a three-month high. Traders will this week be looking ahead to a myriad of Central Bank speakers alongside the US CPI on Thursday. Back in Europe, majors continue shifting between the red and the green, but a clear decoupling is seen with the core vs the periphery market - which sees persistent weakness in Italy’s FTSE MIB (-1.2%) and Spain’s IBEX (-0.9%) as the meltdown in periphery bonds weighs on the Italian and Spanish banks due to their high exposures to domestic bonds. Sectors are mixed in Europe with Basic Resources the clear outperformer as iron ore and aluminium prices edged higher overnight whilst Energy gives back some gains after Friday’s solid performance. The elevated energy prices have also been weighing on the Utility sector as energy providers have to choose between taking on the higher costs or passing them down to customers. In terms of individual movers, Faurecia (+2.7%) sits at the top of the Stoxx 600 after the Co. announced ambitions following the acquisition of a controlling stake in HELLA – with the combined entity to be named “Forvia”. Vodafone (+0.6%) also sees gains amid reports the Co. is reorganising its global enterprise division as part of an overhaul of its operations in the UK and continental Europe, according to sources. Analysts suggested the overhaul could make it easier to sell off parts of the group.

07 Feb 2022 - 10:06- Research Sheet- Source: Newsquawk