EUROPEAN EQUITY UPDATE: Europe and US mixed, contained, but off lows ahead of several risk events this week

Analysis details (10:06)

Equities in Europe kicked off the week in a flat and indecisive manner before picking up, with cash markets in the region mostly in positive territory (Euro Stoxx 50 +0.3%; Stoxx 600 +0.2%), despite a lack of fresh news at the time. The momentum has seeped into the US with the futures lifted off lows, albeit still trading with modest losses at the time of writing (ES -0.3%, NQ -0.4%, YM -0.2%, RTY -0.5%). Analysts at Deutsche Bank believe that the US forward estimates are still high for next year, see Q2 S&P 500 earnings on track to rise by 9.4% in aggregate. The bank highlights three factors: 1) large increase in energy earnings giving +10.5ppt boost to S&P 500 growth; 2) return to profitability for pandemic-impacted companies giving +2ppt boost; 3) a drag from banks provisioning for loan losses hitting EPS by -4ppt. Traders look ahead to the slew of risk events on this week’s docket, including central bank rate decisions, OPEC+, NFPs & House Speaker Pelosi's trip to Asia, with unverified Twitter, reports from a Taiwanese journalist suggested Pelosi will arrive in Taipei tomorrow night – which if true, will likely spark a military response from China, probably in the Taiwanese Strait. Back in Europe, the morning has seen the final release of PMIs from the region, which mainly highlighted the persisting downturn in the manufacturing sector “adding to the region’s recession risks. New orders are already falling at a pace which, excluding pandemic lockdown months, is the sharpest since the debt crisis in 2012, with worse likely to come”, but the weaker demand environment has alleviated supply constraints and some price pressures. Sectors are mixed with Banks heavily outperforming with HSBC soaring almost 6% post-earnings after a 61% Y/Y jump in profits, while the bank also pushed back on a proposal by top shareholder Ping An Insurance Group to break up the firm. The rest of the sectors see a relatively narrower market breadth. Elsewhere, Heineken (-0.5%) beat on expectations but warned they expect significant inflationary pressure on cost base and ongoing business investment to continue and impact into H2 and 2023 – with the stock capping some upside in the AEX (+0.1%).

01 Aug 2022 - 10:06- Research Sheet- Source: Newsquawk