EUROPEAN EQUITY UPDATE: Europe sees cautious gains whilst US futures take a breather ahead of US PCE

Analysis details (09:37)

• Stock in Europe opened mixed and have since tilted modestly higher, although the breadth of the market is narrow, with the region failing to gain much impetus following the rally on Wall Street. APAC markets finished the last session of the week with mild gains as the upside was hindered following hotter-than-expected Tokyo CPI which keeps pressure on the BoJ to lean less dovish. The European morning has been quiet in terms of news flow and market action, with traders now focusing on the US monthly PCE metrics, which will inform expectations about the progress of capping inflation. Next week’s focus will be on the myriad of major central bank events, as the Federal Reserve, BoE and ECB are slated to release their latest monetary policy decisions in the run-up to the US jobs report next Friday. US equity futures trade with varying degrees of mild losses, with the NQ the laggard following Intel’s bleak earnings overnight and yesterday’s Tesla-driven outperformance (ES -0.4%, NQ -0.7%, RTY -0.3%, DJIA -0.1%). Back in Europe, equity futures waned off best levels ahead of the cash open, whilst cash markets trade with little in the way of a firm direction (Euro Stoxx 50 Unch, Stoxx 600 +0.1%).


• Sectors are mixed with Energy the top performer amid the recent gains in the complex, whilst Basic Resources and Healthcare sit as the laggards. Overall, no real theme can be derived from the sectors, with the sectoral breadth also narrow. Tech resides towards the bottom of the bunch as Intel (-10% pre-market) shares slump as earnings missed forecasts and the Co. provided a weak market outlook. Furthermore, Japan and the Netherlands agreed to join the US on China chip curbs with US, Dutch and Japanese officials set to conclude talks as early as today, while the Netherlands is to expand restrictions on ASML (-0.8%) and Japan will set similar limits on Nikon, according to Bloomberg and Reuters.


• In terms of movers, Sainsbury’s (+4.8%) is bolstered by reports Bestway Group agreed to acquire 3.4% of Sainsbury’s share capital and intends to hold for investment purposes and looks forward to supporting the Co. Sticking with the UK, Rolls-Royce (-1.9%) shares have slipped as the Co’s new CEO delivered a bleak assessment to employees, said the company underperforms every key competitor. Meanwhile, the European earnings docket has been heavy on the consumer goods front, with luxury giant LVMH (+0.7%) defying the downturn with record profits and a dividend hike, although some reports point to lower margins as a blemish. LVMH trimmed opening losses of over 2% and trades in the black at the time of writing. Other fashion-focused consumer cyclicals – such as Salvatore Ferragamo (-2.0%) and H&M (-5.6%) - were less upbeat.


• Finally, the latest BofA weekly flow show (in the week to Wednesday) highlighted that stocks saw the largest inflow in six weeks of USD 13.9bln whilst cash saw outflows of USD 2.3bln – with BofA suggesting “in Jan stocks have been playing catch-up with bonds & credit, China reopen theme (up in industrials), morphed into peak yield (REITS & homebuilders) in Q4, and this year tech has been played catch-up (rate cuts, dollar down, job cuts 4 margins), speculation has returned.”

27 Jan 2023 - 09:40- Research Sheet- Source: Newsquawk