EUROPEAN EQUITY UPDATE: Equities fade earlier gains with markets gearing up for Powell on Wednesday, PCE on Thursday and NFP on Friday.

Analysis details (10:15)

European bourses now trade mostly lower after the initial China-led optimism petered out in early European hours. Nonetheless, Hong Kong’s Hang Seng closed with gains of over 5% with the Shanghai Comp. gaining some 2.3% amid a concoction of property support measures alongside speculation that China could ease its COVID restrictions. However, at the weekly Chinese COVID presser, health officials boosted the vaccination drive for the elderly and stressed they must keep avoiding excessive COVID curbs – this followed reports via SCMP yesterday which suggested China’s policymakers are urged to clarify how economic growth and zero-Covid can go hand in hand. US equity futures meanwhile remain modestly firmer across the board but off best levels (ES +0.3%, NQ +0.5%, YM +0.1%, RTY +0.1%) as participants look ahead to Fed Chair Powell tomorrow, followed by US PCE on Thursday and NFP on Friday. Strategists at Citi warn of a potential short squeeze as short positions have been cut back across the board, “but those remaining are in loss and may be squeezed if the market rally continues”. The desk notes that investors remain relatively bearish in US and Chinese equities alongside the Euro Stoxx, but are more bullish on the UK FTSE, German DAX and the European banking sector. In the US, Citi notes that SPX positioning saw little change in the past three weeks and is effectively neutral, whilst the Nasdaq has seen a sharper bullish move but still sees the most net shorts. Meanwhile, BofA strategists are reportedly advising clients to go overweight on small caps on the premise that the downside in small caps is more limited vs large caps as the former is already trading at recessionary multiples. Back in Europe, cash markets opened with modest gains across the board but have since faded the earlier upside (Euro Stoxx 50 -0.1%; Stoxx 600 -0.1%) in a quiet morning and despite welcoming signs from the German regionals and Spanish CPI metrics. Sectors are mostly lower with no overarching bias but Basic Resources reside as the clear outperformers as base metals are lifted by the overnight China COVID optimism alongside the support measures announced for China’s property sector – in turn boosting demand for raw materials. Energy also sits towards the top of the bunch as oil names piggyback on the firmer crude prices, whilst the other end of the spectrum sees Chemicals and Telecom names. In terms of individual movers, chipmaker ASM International (+5.1%) trades at the top of the Stoxx 600 after upping its Q4 revenue guidance due to a lower-than-expected hit to its China sales, although the CEO cautioned that the US is putting pressure on allies amid the chip rules. Elsewhere, Nestle (-0.7%) trades lower despite raising its FY organic revenue growth guidance and announcing a strategic review of its peanut allergy treatment due to slower-than-expected uptake by patients and healthcare professionals. Roche (-0.6%) is pressured after it decided to voluntarily withdraw its US indication of Tecentriq following consultation with the US FDA. Nestle holds around a 3.6% weighting in the Stoxx 600 and a 19.1% weighting in the SMI (-0.2%) whilst Roche holds around a 2.7% weighting in the Stoxx 600 and a 19.0% weighting in the SMI.

29 Nov 2022 - 10:20- Research Sheet- Source: Newsquawk