EUROPEAN EQUITY UPDATE: Equities rebound in early trade but head for another week of losses

Analysis details (09:58)

European indices have started the week's last trading day positively and have extended on gains in early trade, although the broad Stoxx 600 and the narrower Euro Stoxx 50 are both on course to close out the week with losses. This morning's upside is being underpinned by supportive monetary policy updates from China – which saw the PBoC cut the 5yr Loan Prime Rate to 4.45% (exp. 4.60%, prev. 4.60%), though it kept the 1yr Loan Prime Rate unchanged at 3.70% (there were expectations of a cut to 3.65%). Analysts at Bloomberg suggested the reduction was a significant move to boost loan demand, as consumer and business confidence has been battered by COVID lockdowns and a downturn in the property sector - Shanghai posted gains of 1.6% whilst Hong Kong rose over 3.0%. US equity futures have also been trending higher since the reopening of futures trading overnight following the previous day's vigorous volatility. The tech-heavy NQ (+1.7%) currently outpaces the ES (+1.1%), YM (+0.9%) and RTY (+0.9%) following the tech underperformance seen throughout much of the week. The weekly BofA flow show highlighted that investors exited every major asset class in the past week - equity funds saw USD 5.2bln of outflows in the week to May 18th, whilst bond outflow reached USD 12.3bln. European equities see relatively broad-based gains among the majors (Euro Stoxx 50 +1.4%; Stoxx 600 +1.1%). The Swiss SMI (+0.5%) sees its upside capped by hefty post-earnings losses in Richemont (-9.2%), which saw revenue top forecasts, a dividend raise, and the announcement of a special dividend – but accompanied by dire commentary regarding the outlook for its Chinese market. The negative China commentary from Richemont exerted early pressure across the European luxury space, although peers later recovered whilst Richemont held onto losses. Sectors are almost wholly in the green with a clear pro-cyclical bias/anti-defensive bias - Healthcare, Personal & Consumer Goods, Telecoms, Food & Beverages all reside at the bottom of the chart, whilst Autos & Parts, Travel & Leisure and Retail lead the charge on the upside. In terms of individual movers, Air France-KLM (+3.5%) as the Co. is in talks with Apollo for a capital injection of EUR 500mln. Metro AG (+3.1%) is firmer amid source reports via ET that it plans to offload its Indian operations for USD 1.5-1.75bln. Finally, THG (+21.8%) soars amid reports Property tycoon Nick Candy is considering making an offer to buy the Co. after THG said it had rejected numerous "unacceptable" takeover approaches that undervalue the company. THG had rejected a GBP 2.07bln bid from two investment firms, according to the FT.

20 May 2022 - 09:57- EquitiesResearch Sheet- Source: Newsquawk