EUROPEAN EQUITY UPDATE: Europe trades mostly lower, Tech lags post-IBM, and State-side futures post modest gains

Analysis details (10:15)

Stocks in Europe kicked off the session with modest losses, which have extended following the release of ECB sources which suggest that policymakers are to discuss a 25bp or 50bp hike amid worsening inflation at Thursday's meeting, whilst they’re honing in on a deal to make new bond purchases conditional on NextGenEU targets and fiscal rules. The Central Bank, in its prior communication and via President Lagarde, stressed a commitment to the existing guidance of a 25bp hike this month and then a 25bp move or more. Sentiment across equities was hit in what was a delayed move, and stocks printed fresh session lows before nursing those losses. US equity futures saw some headwinds from the price action in Europe, but to a lesser extent, and currently hold onto gains - NQ (+0.2%), ES (+0.2%), RTY (+0.3%), and YM (+0.3%). Back in Europe, bourses are mostly in the red (Euro Stoxx 50 -0.7%; Stoxx 600 -0.2%). Sectors are mostly lower with the exception of Healthcare, Utilities, and Banks, whilst Energy swings between the red and the green. Thus, with the IBEX35 (+0.8%) bucking the trend with the gains due to its high concentration of the outperforming sectors, and in a similar vein, the FTSE 100 (Unch) and SMI (+0.3%) see their losses cushioned against other major peers. On the other end of the spectrum, chip names are burdened by IBM (-5.0% pre-market) cutting cash flow guidance yesterday, with STMicroelectronics (-2.8%), Infineon (-2.7%), ASML (-1.8%) all dragging on the tech sector – ASML is due to report tomorrow. In terms of individual movers, EDF (+15%) is boosted to the top of the Stoxx 600, with shares resuming trade after a one-week suspension as the French government announced nationalisation and delisting plans for the Co. The French government intends to buy the 15.9% remaining shares and bonds and is offering EUR 12.0/shr (12th July close EUR 10.23/shr) – the deal represents an overall value of circa. EUR 9.7bln. In terms of earnings, Novartis (+0.6%) benefits from its Sandoz guidance being upgraded. Volvo (+0.4%) remains firm after beating expectations for its Adj. operating profit and revenue, but gains are capped as the truck-maker cut its China guidance. In the US, premarket earnings include JNJ, Lockheed Martin, and Halliburton, whilst Netflix is due to report after the bell. In terms of commentary, UBS joins the camp that expects earnings momentum to fade in H2, with strategists suggesting investors’ expectations are high and “are unforgiving to disappointments”. From a more macro perspective, BofA in this Global Fund Manager Survey (from Jul 8-15), suggests that expectations for global growth and profits are at all-time lows, and a dire level of investor pessimism indicates investors are in “full capitulation. The bank also suggests investors' allocation to equities is at the lowest since Oct 2008, whilst investors are very long cash and defensives such as staples, utilities, health care… and very short stocks, particularly EU, in sectors such as banks, tech and consumer. BofA suggests that H2 fundamentals are “poor”, but sentiment suggests stocks and credit rallies in the coming weeks.

19 Jul 2022 - 10:15- EquitiesResearch Sheet- Source: Newsquawk