EUROPEAN EQUITY UPDATE: Hawkish repricing and geopolitical angst hampers stocks

Analysis details (09:46)

European equities (Eurostoxx 50 -1.3%) are lower across the board with losses in the pre-market attributed to the soft close on Wall St yesterday and the tide of ongoing hawkish repricing of monetary policy expectations, particularly for the ECB with markets now assigning a circa 80% chance of a 75bps move next week. The downbeat sentiment also reverberated across the APAC region overnight with concerns exacerbated by an unexpected contraction in the Chinese Caixin Manufacturing PMI with Capital Economics noting that the data “suggests downward pressure on industry intensified last month, and there may be more pain to come”. Sentiment was further depressed ahead of the cash open after the Taiwanese Defense Command said it shot down an unknown civilian drone near Kinmen after the usual protocol to repel the drone failed to achieve its goal. A subsequent report from the Taiwanese Defence Ministry noted that China is modifying its attack plans on Taiwan in lieu of the Russian invasion of Ukraine and continues to strengthen its combat preparedness for an attack on Taiwan. US futures are softer across the board (ES -0.6%, NQ -1%, RTY -0.8%), with the duration sensitive Nasdaq-100 leading the downside as Treasury yields climb 5-7bps and the curve bear steepening. Semis are also under pressure after news that the US barred Nvidia (NVDA) and Advanced Micro Devices (AMD) from selling certain products to China and Russia. Back to Europe, strategists at Citi suggest that European equity analysts are near peak bullishness despite the prospect of a looming recession in the region. Citi flags tech, consumer durables and retail as sectors “at risk” with more “pragmatic” ratings for transport, utilities and autos. Elsewhere, Bernstein cautions that energy is the “most crowded” sector in Europe, however, the crowding risk is offset by its relative cheapness. Sectors in Europe are lower across the board with Basic Resources the laggard, in-fitting with price action in underlying commodities. Luxury names were softer at the open amid further lockdown woes in China with the Chengdu (a city of 21 million people) subject to fresh measures. Richemont (-3.7%) is a standout laggard in the sector following ongoing shareholder disputes over board appointments and a broker downgrade at HSBC (as was the cas for Swatch; -5%). Finally, Reckitt (-4%) shares have been hit by news that its CEO Narasimhan is to step down from the Co. On September 30th.

01 Sep 2022 - 09:46- - Source: Newsquawk