EUROPEAN EQUITY UPDATE: Europe catches up to Wall Street’s late rebound whilst stateside futures trade softer

Analysis details (09:34)

Major bourses in Europe hold onto the upside seen at a rather unsteady cash open where futures and cash briefly trimmed gains in choppy trade, with the region catching up to yesterday’s Wall Street rebound. APAC equity markets overnight failed to gain impetus from the US turnaround, whilst US equity futures drifted lower since the resumption of trade overnight, with some underperformance experienced in the NQ (-1.2%) vs the losses seen across the ES (-0.8%), YM (-0.4%), and RTY (-0.8%) as the FOMC announcement looms. Expressing their views on Monday’s Wall Street revival, analysts at Barclays propose it’s too early to buy the dip – suggesting “Downside risks from monetary tightening are higher vs history. The pain has so far been localized to high valuation stocks, but signs of a broader risk-off are brewing.” The bank adds “Using the pre-pandemic valuations as rough gauge there is still ~8% downside potential to SPX with more pain for higher valuation stocks.” Meanwhile, UBS Wealth Management suggests the Monday rebound reflected the oversold conditions, whilst the fundamental picture looks positive in the medium-term. Back in Europe, cash bourses remain in the green (Euro Stoxx 50 +0.6%; Stoxx 600 +0.6%) with broad-based upside seen across the majors. This morning’s German Ifo Survey was overall a mixed bag, but on the topic of inflation, the survey suggested “no easing of prices and at least every second industrial firm is planning additional price hikes” – in-fitting with the Markit’s commentary yesterday ahead of the January inflation metric next week. Sectors are mostly in the green with defensives on the backfoot: Food & Beverages, Healthcare, Personal & Households Goods towards the bottom of the bunch. On the flip side, Banks, Telecoms, Basic Resources, Retail and Travel & Leisure currently stand as the top gainers. In terms of a European strategy, analysts at UBS Wealth Management conform to the view that participants should remain exposed to cyclical and value stocks despite headwinds, with favourability towards energy companies that lagged the oil price increase, whilst Eurozone stocks offer more value. In terms of individual movers, Logitech (+9.7%) sits at the top of the Stoxx 600 after upping its guidance with Ericsson (+7.5%) a close second after increasing its dividend by more than expectations. On the other end of the spectrum, Remy Cointreau (-1.6%) and Swatch (-0.7%) trade lower following their respective earnings. Finally, Credit Suisse (-0.9%) shares are under pressure after the bank flagged litigation provisions of around CHF 500mln, which is expected to negatively impact Q4 pre-tax to around break-even – with the full earnings set to be released on February 10th.

25 Jan 2022 - 09:34- EquitiesResearch Sheet- Source: Newsquawk