EUROPEAN EQUITY UPDATE: FTSE 100 leads peers as energy stocks benefit from OPEC+ action

Analysis details (09:23)

• European equities (Eurostoxx 50 +0.3%) trade a touch firmer after a relatively tentative start to the session. The main macro story of note has been the surprise voluntary output cuts by OPEC+ members totalling over 1mln bpd from May through to year-end. In some quarters, this has been viewed with a pro-inflationary and subsequently tighter monetary policy lens. However, stocks in Europe thus far have been resilient to this line of thinking and are managing to eke out mild gains. The FTSE 100 (+0.7%) is the standout outperformer in the region given its heavy weighting of energy names as BP (+4.2%) and Shell (+3.9%) sit at the top of the index.


• The handover from Asia was a largely constructive one with focus overnight on disappointing Chinese Caixin Manufacturing PMI.


• US equity futures are below neutral (ES -0.1%), with the Nasdaq-100 (-0.6%) leading the downside as Treasury yields tick higher in wake of the surprise OPEC+ announcement. Currently, money markets are discounting a greater probability of a 25bps rate rise at the May 3rd FOMC - for much of last week, even after the PCE data, it was around 50-50. There are, of course, many other data prints to go before that May meeting that will give data-dependent officials fodder to chew over, including today's Manufacturing ISM (the Services gauge is out Wednesday), and the jobs data due on Friday.


• JP Morgan believes that to be positive on equities at this stage, “one has to have a very bullish set of assumptions on growth & rates as there is an alternative, the main risk-free rate is offering 5%, duration risk free”. JPM suggests that “the consensus view that policy rates will come down quickly might be disappointed”. As such, JPM believes that stocks are set to weaken for the remainder of 2023, adding that “one should be UW stocks from here”.


• Asides from the rampant gains in energy stocks, equity sectors in Europe are a mixed bag with Banking names the only other notable gainer whilst Travel & Leisure and Basic Resource lag to the downside with the former seeing airlines hampered by higher fuel costs.


• In terms of the latest for Credit Suisse and UBS, Switzerland’s Attorney General is to investigate whether the Credit Suisse takeover by UBS broke Swiss criminal law and is looking into potential breaches by government officials, regulators and bank executives, according to The Guardian. Elsewhere, reports suggest that UBS will cut its workforce by between 20%-30% after completing the takeover.

03 Apr 2023 - 09:23- Research Sheet- Source: Newsquawk