EUROPEAN EQUITY UPDATE: Indecisive trade after yesterday's Wall Street selloff and APAC rebound

Analysis details (09:45)

Major bourses in Europe kicked off the session with a mild positive bias which dissipated within the first hour of trade (Euro Stoxx 50 -0.4%; Stoxx 600 -0.2%), with fresh catalysts also on the lighter side. The overall mood across the equity space is one of indecision as the positivity from APAC weakens, with US equity futures off best levels and the RTY (Unch) the laggard vs the ES (+0.3%), NQ (+0.4%) and YM (+0.3%) as earnings season picks up pace ahead of next week’s much-anticipated FOMC confab. The main theme across the markets remains central banks’ pivots amid persistent inflation, whilst geopolitics also simmers in the background and COVID takes a bit more of a back seat in the West. Meanwhile, analysts in recent weeks have been flocking to the view of EZ equities outperforming the US, with HSBC the latest to upgrade EZ stocks to overweight whilst downgrading the US to neutral. Back to European trade, cash bourses are now in the red across the board to varying degrees. The AEX (-0.1%) is cushioned by its heavyweight Unilever (+1.3%) clawing back some recently lost ground after suggesting it will not increase its offer for GlaxoSmithKline’s (-1.9%) Consumer Health unit. As such, the Consumer Staples sector stands at the top of the bunch whilst healthcare remains subdued. Delving deeper, overall sectors are mostly in the red with a slight defensive bias. Basic Resources made its way down the ranks since the cash open as base metals trimmed earlier gains in tandem with the risk profile. Oil & Gas and Banks are among the straddlers amid pullbacks in crude prices and bond yields. On that note, Citi analysts point out that the last three large rallies in the European banking sector abated due to “falling nominal and real yields, excessive valuations, flattening yield curves and reduced profitability”, but this time it may be different. The desk argues “Fed and ECB hikes will keep bond yields rising, valuations are cheap and an improvement in sector RoTE should be sustainable”, whilst a steepening EUR yield curve will provide further tailwinds. Individual movers are relatively dull as the macro narrative takes the wheel. Ahead, the ECB minutes may be deemed stale given the fluidity of the macro landscape since the mid-December meeting, whilst US earnings today kick off with Travelers Companies (11:55GMT) shortly followed by American Airlines group (12:00GMT), although the highlight will be Netflix (21:00GMT) after-hours. 

20 Jan 2022 - 09:45- Fixed IncomeResearch Sheet- Source: Newsquawk