EUROPEAN EQUITY UPDATE: Europe tilts lower post-von der Leyen, but the US flatlines pre-FOMC

Analysis details (10:10)

European equities are very much experiencing choppy/indecisive pre-FOMC trade, but sentiment in the region tilted to the downside shortly after the cash open as European Commission President von der Leyen unveiled the sixth sanctions package against Russia. US equity futures trade with mild broad-based gains across the contracts: ES +0.2%, NQ +0.2%, RTY +0.2%, and YM +0.2% as the Fed gears up for its announcements at 19:00BST/14:00EDT, with Chair Powell’s presser at 19:30BST/14:30EDT. The FOMC is seen lifting its target Fed Funds Range by 50bps to 0.75-1.00% in its second hike post-COVID and is also set to formally announce its balance sheet reduction plans with maximum monthly caps expected at USD 60bln and 35bln of Treasuries and MBS. Powell's Presser/Q&A will be key for guidance on the rate path to neutral and potentially beyond (full Newsquawk preview available in the Research Suite). Add to that, US President Biden will also deliver a speech on economic growth, jobs, and deficit reduction, alongside the FOMC’s release at 19:00BST/14:00EDT. Back in Europe, mild and relatively broad-based losses are seen across the major cash indices (Euro Stoxx 50 -0.3; Stoxx 600 -0.3%) with no standout performer. Analysts at Barclays suggest a bounce in European equities could occur without much good news amid “depressed technicals and sentiment levels”, but headwinds in the form of slowing growth and tightening liquidity mean rallies will likely be offered in the absence of positive catalysts. The British bank also expects value vs growth valuations to continue converging as real rates increase. The bank maintains the Energy and Bank sectors with an overweight rating for now. Sectors are mostly lower with the exception of Energy (amid crude prices), Travel & Leisure (Flutter Entertainment +5.5% post-earnings) and Media (Universal Music Group +2.1% post-earnings). The downside sees Retail, Basic Resources, Construction, and Financial Services – but overall, there is no theme to be derived from the European sectoral performance. In terms of corporate results, Maersk (+2.1%) initiated the second phase of its buybacks but lowered global container demand growth view to -1/+1pct (prev. up 2-4pct), noting that global container demand -1.2% in the quarter, freight rates remained elevated as Covid-19 and capacity shortages continued to disrupt the supply-side of the logistics industry. Volkswagen’s (-0.1%) Q1 sales were a little short of expectations, but the auto name kept its outlook unchanged. Equinor (+1.6%) posted record Q1 profits amid gas price surges. EDF (-4.0%) revenues were up, but outages limited profit levels, whilst the Co. also warned that risks have increased on the schedule and costs at completion for Hinkley Point C have increased since the January update. Fresenius SE (+2.7%) profits topped expectations in Q1 underpinned by generics, whilst Fresenius Medical Care (-4.9%) saw its results in line with expectations but highlighted headwinds. Siemens Healthineers (+2.4%) raised its outlook on demand for COVID testing kits.

04 May 2022 - 10:10- Fixed IncomeResearch Sheet- Source: Newsquawk