EUROPEAN EQUITY UPDATE: Hawkish price action continues as Schnabel pours further fuel on the fire

Analysis details (09:30)

European equities (Stoxx 600 -1.0%) trade on the back foot but the Stoxx 600 is still on track to close the week out with modest gains of around 0.5%. The hawkish price action followed on from soft US and APAC handovers with the former dragged lower by PPI data and subsequent hawkish rhetoric from the Fed. Thereafter, hotter-than-expected German PPI metrics and a hawkish intervention from ECB’s Schnabel added further fuel to the fire. Schnabel opined that the broad disinflation process has not even started yet, whilst also highlighting that QT could be sped up after June and a weaker policy transmission could require more forceful action. Elsewhere on the data front, UK retail sales came in above expectations with the recovery driven by a 0.6% month-to-month increase in non-food store sales, according to Pantheon Macroeconomics. Stateside, US futures are lower across the board (ES -0.7%, NQ -0.8%, RTY -0.4%) in a continuation of the recent bearish price action alongside a hawkish repricing of market-implied expectations of the Fed’s rate trajectory; the terminal rate is now seen at 5.30% (in the 5.25-5.50% FFR target range bracket). In terms of bank calls, Goldman Sachs has raised its own projection of where US rates will peak; the bank expects three more 25bps hikes from the Fed in March, May and in June, which will take the FFR target range to a peak of 5.25-5.50%. Sectors in Europe are mostly lower with Autos the only sector in the green following post-earnings support from Mercedes-Benz (+2.4%) after the Co. reported above-expected results and an up to EUR 4bln share buyback. To the downside, Tech, Consumer Products and Energy names lag. NatWest Group (-7.8%) is the standout underperformer post-results which saw firmer-than-expected results overshadowed by a cautious outlook. Elsewhere, Allianz (-3.0%) is another notable laggard and sits at the foot of the DAX 40 after Q4 results underwhelmed, with the insurance sector also hampered by losses in Direct Line (-1.5%) following a broker downgrade at RBC.

17 Feb 2023 - 09:30- Research Sheet- Source: Newsquawk