EUROPEAN EQUITY UPDATE: Equities trade cautiously ahead of EZ CPI and tier-1 US data in the run-up to the FOMC

Analysis details (09:48)

• Equities in Europe kicked off the pre-FOMC session with cautious gains, following a firmer lead from APAC after optimism reverberated from Wall Street. Stocks on Wall Street rallied into month-end, although communication names came under pressure after hours on disappointing updates from SNAP (-14% pre-market) and EA (-10% pre-market), which weighed on peers including META (-1.2%) ahead of its earnings due after hours today. Before that, analyst consensus sees the FOMC lifting its Federal Funds Rate target by 25bps to 4.50-4.75%, with a small minority noting the potential for a larger 50bps hike increment. Fed Chair Powell is likely to stay the course around the fight against inflation not being over and the "higher for longer" policy stance, guiding to more hikes in the future despite the latest encouraging disinflationary data, but it's seen as unlikely that any efforts to jawbone tighter financial conditions will be successful barring a change in the data, with markets themselves in data-dependency mode (Full Newsquawk Preview available in the Research Suite). US equity futures are trading with a mild downside bias at the time of writing (ES -0.3%, NQ -0.2%, RTY -0.3%), with the data docket consisting of the ADP National Employment and ISM Manufacturing PMI before the main event.


• Back in Europe, yesterday’s Wall Street rally provides the region with some tailwinds, but a busy earnings docket, EZ inflation metrics, and tomorrow’s ECB announcement have somewhat capped the upside. As a reminder, the EZ release today will include an estimate for the German component as German HICP was pushed back to next week amid a technical glitch. On the data front, EZ manufacturing PMI was unrevised for January following a mixed bag of regionals, with the release suggesting “the picture is considerably brighter than the lows seen back in last October heading into the winter”, but “demand remains lacklustre”, and "selling prices increased at a slightly faster pace, although inflation here was well below the 2022 trend." Back to cash markets, sectors in Europe are mostly firmer but the breadth of the market remains somewhat narrow with no overarching theme. Travel & Leisure, Real Estate, and Industrial goods reside as the modest outperformers thus far, while Basic Resources, Insurance, and Consumer Products and Services sit as the current laggards. The morning has been busy with notable pre-market earnings: Novartis’ (-1.4%) Q4 sales and profits declined, although core EPS was above expectations - the healthcare giant also lifted its dividend and forecasts profits in FY23. GSK (+0.7%) Q4 sales and profits topped expectations and guided profit and sales growth ahead. Hannover Re (-3.7%) drags down the insurance sector after it increased its net major-loss budget for 2023 to EUR 1.725bln from EUR 1.4bln. Meanwhile, BBVA (+1.0%) said it was on track to achieve long-term targets.


• In terms of market commentary, analysts at Goldman Sachs believe European, Asian, and EM stocks look attractive vs the US at this point, irrespective of the recent rally. The desk believes European valuations are “very very cheap” compared to the States, and suggest “Europe has always traded at a discount compared to the US but that discount is particularly large at the moment, and that makes global investors quite interested”. GS does not see an equity-market “plummet” from here unless markets receive a large inflation surprise again.

01 Feb 2023 - 09:50- EquitiesData- Source: Newsquawk