EUROPEAN EQUITY UPDATE: European stocks bolstered in tandem with a slide in gas prices and a narrowing in ECB pricing

Analysis details (10:25)

Risk appetite was bolstered shortly after the European cash open with futures extending on the mild upside seen overnight, whilst APAC bourses saw a mixed close. The pick-up in sentiment did not coincide with any particular headlines but rather occurred in lockstep with a decline in European gas prices and as German regional CPIs offered no surprises, whilst money markets now price a 52% of a 75bps ECB hike next week (vs 67% chance on Monday). US equity futures are taking the cue from the rise across the pond, with the NQ (+1.2%) narrowly outperforming the ES (+0.8%), RTY (+0.8%),  and YM (+0.7%). Following the Jackson Hole Symposium last week, analysts at Credit Suisse have recommended investors go underweight global equity as central bankers refrained from dovish surprises. In terms of risk events ahead, the session eyes several central bank speakers including ECB’s Vasle, Holzmann, Fed’s Barkin, and Fed’s Williams. The aggregated German national CPI will be released later today, ahead of Wednesday’s Eurozone CPI report, which will be key in shaping expectations regarding next week’s ECB, where one bank is now predicting a 75bps rate hike. Participants should also be aware of month-end flows, with Citi’s model signalling sell equities and buy bonds. Furthermore, tomorrow Gazprom is expected to halt European gas supply via Nord Stream 1 amid the previously announced three-day maintenance, although jitters remain on whether supply will return alongside and at what volume. This morning, Gazprom informed Engie (+0.9%) of a reduction in gas deliveries from today, due to a disagreement on the application of some contracts. Bourses in Europe post notable gains (Euro Stoxx 50 +1.3%; Stoxx 600 +0.8%), but the UK’s FTSE 100 (+0.3%) plays catch-up after its Bank holiday closure on Monday. Sectors in Europe are mostly in the green and portray a mild anti-defensive bias, although Energy and Basic Resources lag in tandem with UK markets. On the flip side, Retail, Banks, and Tech lead the gains. In terms of movers, on the index level, Abrdn (+0.7%) and Avast (+0.1%) are poised to be replaced by Fraser Group (+1.1%) and Homeserve (Unch.) in the FTSE 100 - the reshuffle will be based on Tuesday's closing prices and will take effect mid-September. In industrials, BAE Systems (-1.3%) is reportedly nearing a multi-billion pound government deal. In energy, Aker Solutions (+7.0%) entered into a JV with Subsea 7 (-3.7%) and Schlumberger - Aker Solution is expected to recognize a gain of around USD 1bln at the closing of the transaction.

30 Aug 2022 - 10:24- Research Sheet- Source: Newsquawk