EUROPEAN EQUITY UPDATE: Modest upward tilt pre-US CPI and with tariffs capping optimism

STOXX 600: +0.1%; FTSE 100 +0.1%, CAC 40 +0.2%, DAX +0.3%

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  European equities kicked off the midweek session with moderate gains following a mixed APAC handover and amid another busy corporate earnings slate, ahead of key US CPI data, and a further testimony from Fed Chair Powell to Congress.


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  Traders remain on alert for any trade policy updates, with President Trump expected to announce 'reciprocal' tariffs on countries that charge US companies levy on imports; earlier in the week, reports suggested that the announcement could be officially made on Tuesday or Wednesday.


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  On the reciprocal tariffs, Trump plans to impose reciprocal tariffs as soon as "this week" (no date/time mentioned) using executive action, bypassing Congress, according to WSJ. Further, tariff plans could also go beyond simply matching other nations’ tariffs to take into account nontariff trade barriers, WSJ sources added. However, US President Trump responded "We'll see" when asked if reciprocal tariffs are still coming on Wednesday. (Full Tariff analysis piece available on Newsquawk).


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  With regards to EU-US relations, the first conversation between European Commission President von der Leyen and US VP JD Vance yesterday was said to be "very constructive" and focused on areas where interests aligned, according to sources cited by the FT. EU trade minister will meet for a video call this afternoon; not expected to go into detail on a potential retaliation to US tariffs, but the purpose is to "display unity", FT reported.


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  Gains across European majors are modest and contained in the run-up to risk events.

Sectors: Mostly Positive

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  Sectors are mostly positive with no clear sectoral bias, and with the breadth of the market narrow aside from Food, Beverages, and Tobacco which stands out as the outperformer.


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  Marginal laggards include Energy, Optimised Personal Care Drugs & Groceries, and Healthcare.


• The Food, Beverages, and Tobacco sector is bolstered by Heineken (+11.3%) saw FY24 beer volumes rise by 1.6% Y/Y (exp. +1.39%), driven by strong sales of premium beers and non-alcoholic alternatives, despite consumer spending cutbacks on non-essential items; it also reported Q4 net revenue of EUR 7.47bln (exp. 7.53bln), and it announced a 2yr EUR 1.5bln share buyback programme.


• In autos, Hon Hai is open to acquiring Renault's (+1.1%) stake in Nissan; it has also approached Nissan and Honda (HMC) for possible cooperation.


• In financials, ABN AMRO (+7.8%) reported an increase in net interest income for FY24 but expects a slight decline in 2025. Banco BPM (BAMI IM) topped profit and revenue expectations in Q4; has also raised its takeover offer for asset manager Anima Holding from EUR 6.20/shr to EUR 7/shr.


• In industrials, Siemens Energy (-0.4%) expects growth driven by rising electricity demand and the shift to renewable energy; it reported profit before special items doubled, with Q4 revenues up 18%, and its order backlog reaching a record; elsewhere, it affirmed its FY profit margin guidance.


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  In notable broker updates, there is a focus on the airlines sector; Kepler initiated Air France (+1.0%), Lufthansa (+3.8%), Wizz Air (+3.3%) with Hold ratings; initiated easyJet (+1.8%) and Ryanair (+1.1%), IAG (+0.7%) with Buy ratings. Meanwhile, Bernstein downgraded IAG and upgraded Lufthansa.

US Equity Futures: ES -0.2%, NQ -0.1%, RTY +0.2%, YM -0.1%

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  Flat/subdued trade across US equity futures this morning as participants await US CPI, Powell part 2, and potential reciprocal Trump tariffs.


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  US consumer prices are seen rising +0.3% M/M in January (prev. +0.4% M/M in December), while the core rate of inflation is expected to rise +0.3% M/M, picking up from the +0.2% M/M reported in December. Annual CPI is seen unchanged at 2.9% Y/Y, while core inflation is expected to ease to 3.1% Y/Y from 3.2%. Wells Fargo says the data is likely to show that inflation remained stubbornly strong at the start of 2025. "We expect some lingering issues around residual seasonality to buoy January's core reading, but we think this dynamic will be less pronounced than last year," Wells Fargo writes (Full primer available on Newsquawk).


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  JPM’s US Market Intelligence sees Core CPI M>M at 0.23% (YoY 3.1%), the lowest since April 2021. Scenario analysis suggests a 40% base case of 0.27%-0.33%, keeping bond yields stable and supporting stocks (SPX -0.25% to +1%). A hotter-than-expected print (5% chance of 0.40%+) could trigger Fed hike fears, higher bond yields, a stronger USD, and a 1.5%-2% SPX drop. A moderate upside surprise (25% chance, 0.33%-0.39%) may weaken rate cut expectations, leading to a 0.75%-1.5% SPX decline. A softer print (25% chance, 0.21%-0.27%) would reinforce rate cut bets, benefiting SMid-caps (SPX +1%-1.5%). A dovish surprise (5% chance, ≤0.20%) could spur rate cut pricing, bull steepen yields, weaken the USD, and boost SPX by 1.25%-1.75%. Options imply a ~1.3% SPX move for Wednesday’s expiry.

12 Feb 2025 - 09:45- EquitiesData- Source: Newsquawk