EUROPEAN EQUITY UPDATE: European equities extend losses with risk events set to compound

Analysis details (09:44)

Equities in Europe slipped at the open as sentiment remained on the defensive and with eyes also on tomorrow’s FOMC announcement. US equity futures are also softer across the board but to a lesser extent than their European counterparts, the RTY (-0.8%) narrowly lags vs the ES (-0.4%), YM (-0.5%), and NQ (-0.3%) as the latter is cushioned by a pullback in yields. The downbeat tone reverberated from APAC markets as Chinese stocks sank – with the Hang Seng posting losses of 6.5% at one point and the Shanghai Comp shedding 5%. The losses in China come against the backdrop of the deteriorating domestic COVID situation with added headwinds from the PBoC’s MLF inaction overnight. Chinese officials attempted to alleviate fears with a Shanghai official clarifying that Shanghai is not under lockdown and does not need to be at the moment (via State Media), whilst Global Times yesterday tweeted “Shanghai has tightened control over COVID19 by telling residents not to leave the city if it’s not necessary and temporarily suspending coach transportation service.” Chinese data overnight was upbeat but was stale given the measures imposed in multiple cities since. Back to Europe, losses have intensified since the open (Euro Stoxx 50 -2.3%; Stoxx 600 -1.8%) as real progress between Russia and Ukraine remains sluggish with negotiations continuing today. Meanwhile, the US said it had not seen any signs of Russian de-escalation. All this comes as investors brace themselves for tightening by both the FOMC and BoE on Wednesday and Thursday, alongside Quad-witching on Friday. Analysts at Bernstein suggest European stocks could see further outflows as they note “the duration of outflows in previous crisis periods suggest that there may be further selling to come”. Citi meanwhile states “Europe Bearish momentum has slowed in European equity positioning, but positioning remains extended net short.” Add to that, UBS has lowered its Stoxx 600 year-end target from 520 to 480 with the 2022 EPS growth forecast reduced to 8% from 15%. Losses in Europe are more pronounced across the EZ majors (DAX 40 -2.3%; CAC 40 -2.4%) whilst the FTSE 100 (-1.5%) and SMI (-1.5%) see shallower downside amid their high concentrations in defensives. Sectors are lower across the board, but the defensives are clearing faring better than their peers – Personal Household Goods, Media, Utilities, Telecoms, Food & Beverages, and Healthcare reside towards the top of the table. The deepest losses are seen across Consumer Products, Basic Resources, Tech, Energy, Travel & Leisure. Banks, Financials Services and Insurance reside around mid-table. Individual movers today are again largely dictated by the macro force, but Solvay (-0.8%) has given up the gains seen at the open as it announced plans to spin off its Materials and Solutions units in H2 2023. Rio Tinto (-4.0%) sees additional headwinds amid reports it wants to buy out minority shareholders in Mongolian copper miner Turquoise Hill Resources for USD 2.7bln. EZ banks meanwhile have conformed to the downside despite EU regulators ruling out a blanket ban on banks' dividend payout and share buybacks during the Ukrainian crisis, which is a more relaxed approach than what it took during the pandemic.

15 Mar 2022 - 09:40- Fixed IncomeResearch Sheet- Source: Newsquawk