EUROPEAN EQUITY UPDATE: Europe mostly holds onto gains, FTSE lags behind peers

Analysis details (10:20)

Equities in Europe are mostly firmer following CPI-induced optimism which saw further gains on Wall Street after the European cash close, with the sentiment then reverberating in APAC before seeing another boost on reports that China is easing its COVID measures. Upside momentum across equities have somewhat paused since the cash open, with the complex catching its breath and awaiting the next catalyst. That being said, today’s data docket is somewhat light with the next scheduled release being the US University of Michigan Prelim survey at 15:00GMT/10:00EDT, although several central bank speakers from the BoE and ECB are due before then. Regarding post-CPI commentary, analysts at Barclays see the possibility of a further “bear squeeze” despite economic uncertainty as the euphoric market reaction could lead to “fear of missing out”, adding that “equities could be set to follow a bullish pattern of year-end rally, as exposure of hedge funds and systematic funds is still low.” That being said, it’s worth reminding ourselves that yesterday’s CPI report will not have the final say as to what the Fed will opt to do at their next meeting, with one more set of jobs, inflation, and survey reports due before the FOMC’s Dec 13-14th confab. Meanwhile, Jefferies warns that US earnings forecasts will remain challenging amid the lag effects of policy tightening – the desk recommends going long on S&P 500 beneficiaries of the 5yr US Treasury yield declining. Major bourses in Europe have paused near session highs (Euro Stoxx 50 +0.8%; Stoxx 600 +0.4%), but the FTSE 100 (-0.3%) resides as the standout laggard with GSK (-5.0%) dragging down the index after a negative drug update and adding to the pressure seen from the recent Dollar-driven gains in Sterling. Analysts at Bernstein believe that the performance of European momentum stocks is at risk in the event of any rebound in economic growth. The desk suggests that investors should avoid long momentum when macro signals change from recession to recovery – “Although it may take a few months of downward trending inflation before the full recovery kicks in, investors should watch their momentum exposure”, the desk says. Sectors in Europe are mostly in the green with the laggards comprising of defensives, whilst the top performers include Tech, Real Estate, Retail, and Basic Resources. In terms of individual movers, China’s easing of COVID and post-earnings gain in Richemont (+11%) has lifted the broader luxury sector, with LVMH (+2.0%), Swatch (+4.8%) and Kering (+2.0%) and Pandora (+3.8%) all seeing tailwinds, although the upside is somewhat capped after Hong Kong heavily downgraded its 2022 GDP forecast to -3.2% from the prior view of “-0.5% to +0.5%”. Meanwhile, defence names in Europe are retreating, with BAE Systems (-5.7%), Thales (-6.2%) and Rheinmetall (-5.4%) among the worst performers, potentially amid Russia pulling back from the Kherson reaction.

11 Nov 2022 - 10:23- Research Sheet- Source: Newsquawk