EUROPEAN EQUITY UPDATE: Hangover from hawkish ECB causes a headache for stocks

Analysis details (09:25)

European equities (Stoxx 600 -0.9%) have extended their post-ECB slump with the Stoxx 600 on track to close the week out with losses of 2.5%. It’s very much a case of the morning after the day before with a slew of ECB speakers this morning defiant in their stance that rates will need to rise further and to a significant extent. This morning has also seen a slew of PMI releases from across the region with the all three Eurozone-wide metrics exceeding expectations but ultimately remaining in contraction territory. The accompanying report noted “while the further fall in business activity in December signals a strong possibility of recession, the survey also hints that any downturn will be milder than thought likely a few months ago." Interestingly, the French report noted "We’re also seeing the impact that higher interest rates are having on the economy, with some firms attributing this as a factor behind lower business activity". Stateside, US futures (ES -1.1%, NQ -1.1%, RTY -0.9%) are also on the backfoot amid the global stock sell-off. Traders should be aware that today also sees Quad Witching, which can result in bouts of choppy, volatile trading conditions; Bloomberg says that around USD 4tln of options will roll-off today. On the data slate, there could be a bit of outsized attention on today's flash PMI data for December, given the mixed tone already seen in the regional Empire and Philly Fed reports this week - these data all help to form expectations for the key ISM data, which are due to be released early January. The latest BofA flow show noted that global stock funds saw USD 18bln of inflows, Bonds USD 2.3bln inflows, cash USD 1.1bln outflows (largest in three months). By region, US stocks saw USD 25.2bln inflows and Europe USD 4bln outflows (44th consecutive week of outflows). Analysts at Barclays suggest that there is scope for a rotation from stocks to bonds as the market focus shifts from inflation worries to growth concerns. Sectors in Europe are lower across the board with clear underperformance in the Real Estate sector given the unfavourable rate environment post-ECB, whilst Tech is also another standout laggard. Stock specific newsflow has been on the light side, however, Just Eat Takeaway (-1.6%) has been in focus after Cat Rock lowered its stake in the Co., whilst Games Workshop (+14.8%) is the standout performer in the Stoxx 600 after signing a Warhammer film deal with Amazon.

16 Dec 2022 - 09:25- Research Sheet- Source: Newsquawk