EUROPEAN EQUITY UPDATE: Equities see cautious gains as the clock ticks down to US CPI

Analysis details (09:58)

Equities in Europe extend on opening gains in what was a relatively contained morning before a pickup in momentum, and in the run-up to the US April CPI metrics. Analysts will be watching the data to see if the trends in the March CPI and PCE data – where annualised rates eased, leading to many 'peak inflation' calls – will be seen again. Although the consensus expects the annual rates to cool again, some warn that inflation may have room to tick up. The S&P Global PMI data sets, for instance, recently noted that inflationary pressures intensified further in April, where input prices and output charges increased at the sharpest rates on record. S&P said material and labour shortages, alongside greater transportation costs, drove the rise in prices. "Subsequently, services firms increased efforts to pass through higher cost burdens on to clients through hikes in selling prices," adding that "the pace of charge inflation accelerated notably." (Full Newsquawk Primer available here). US equity futures have remained caged with the ES (+1.1%) maintaining above 4,000 whilst the tech-laden NQ (+1.3%) benefits from the pullback in yields. Analysts at Citi, on global equities, suggest that crowding in the tech sector has declined significantly – “The trend is similar this month across all regions as the most crowded Quant factor remains the same and high growth sectors such as Technology see a significant decline in crowding. The most crowded stocks outperformed the least crowded stocks, helped by the outperformance of Energy and commodity sectors.” Citi adds “Interestingly, with growing concerns over slowing economic growth and tighter financial conditions, Financials remain among the most crowded sectors in many regions while defensives remain among the least crowded (ex US). This could imply that the market may not be pricing in a full-blown recession just yet.” Back to today’s session, major European bourses are firmer but to varying degrees (Euro Stoxx 50 +1.6%; Stoxx 600 +0.7%). The DAX 40 (+0.6%) narrowly lags its peers as Bayer (-6%) keeps upside capped after the Biden admin has urged the US supreme court to reject an appeal by Bayer which could open the Co. up to billions of dollars in lawsuits, according to a court filing cited by Reuters. Elsewhere, the CAC 40 (+1.8%) is propelled as Luxury names cheer the improving COVID situation in China – with China’s Global Times recently noting "The transmission risk of the latest epidemic outbreak in Shanghai has been effectively curbed". Kering (+3.1%) and LVMH (+2.3%) – who together hold around a 15% weighting in the CAC 40 - reside toward the top of the French index, whilst peers Richemont (+3.5%), Swatch (+3.2%), Burberry (+2.4%) follow suit. Sectors in Europe are mostly higher with Basic Resources and Consumer Products leading the charge - the former lagged yesterday. The downside sees some of the more defensive sectors, although Healthcare underperforms as sector heavyweight Roche (-5.1%) suffers after missing a co-primary endpoint in its tiragolumab plus Tecentriq trial. In M&A news, Swedish Match (+8.5%) sees further gains after rising 25% yesterday as Philip Morris confirmed is to buy Swedish Match for SEK 106/shr in cash (Swedish Match closed at SEK 95 on Tuesday). Elsewhere, Zurich Insurance (+1.5%) is said to be in talks to sell its USD 21bln German life insurance policies to Cinven’s Viridium Group, according to Bloomberg sources - an announcement could be made as soon as this week.

11 May 2022 - 09:58- EquitiesData- Source: Newsquawk