EUROPEAN EQUITY UPDATE: Opening gains prove fleeting for European stocks

Analysis details (09:20)

• European equities (Eurostoxx 50 -0.3%) initially saw some modest support at the open with some relief that there wasn’t a major escalation in the Israel-Hamas conflict over the weekend. Markets have taken some solace from news that the US has pressed Israel to delay its ground offensive in order to secure the release of hostages. That being said, tensions remain high with an Israeli official stating there will not be a ceasefire in Gaza, whilst also warning about the consequences for Lebanon if Hamas gets involved in the conflict. In terms of macro updates for Europe, other than S&P’s latest Italian rating review that was unchanged and maintained a stable outlook alongside an upgrade to Greece into investment grade, things are relatively quiet with the ECB now in its quiet period ahead of its policy announcement on Thursday. On which, policymakers are widely expected to stand pat on rates after deeming that rates are now sufficiently restrictive.


• US equity futures have also succumbed to downticks in recent trade after initially treading water in early European trade. The ES (-0.1%) has extended further south of the 4250 mark after breaching Friday’s low of 4243.5; other indices are also softer/flat (NQ unch., RTY -0.1%). It’s hard to pin much of a narrative on today’s price action with many of the same factors (firm yield environment, geopolitical risks, Washington impasse and earnings season) still at the forefront of investor sentiment. Amid a higher yield environment, GS notes that it expects “investors will continue to focus on balance sheet strength and avoid companies that are most vulnerable to increased borrow costs”. GS “adds that performance since the start of September has reflected this dynamic as strong balance sheet stocks outperformed weak balance sheet stocks by 4 pp”. Today’s macro and pre-market earnings slate is a quiet one for the US and instead traders will be looking ahead to a busy week of earnings alongside US GDP and PCE.


• APAC stocks traded with losses across the board following the downside seen on Wall Street on Friday, with participants citing mixed earnings and geopolitical angst. ASX 200 (-0.8%) fell at the open with the losses led by the Metals and mining sector as the sector caught up to the price action across base metals. Nikkei 225 (-0.8%) was also weaker with the downside led by the Energy and Material names, while the index managed to stay afloat above 31k. Hang Seng was closed due to a public holiday while Shanghai Comp (-1.5%) conformed to regional losses. In Taiwan, Apple-supplier Foxconn tumbled over 3% after Global Times sources suggested Chinese mainland tax and natural resource authorities have conducted inspections on key enterprises of Foxconn.


• Equity sectors in Europe are mostly lower with underperformance in Real Estate and Basic Resources as the latter is dragged lower by softness in underlying commodity prices. To the upside, Retail and Travel & Leisure names are the only sectors in the green. In terms of stock specifics, despite reporting better-than-expected earnings and raising guidance, Philips (-4%) shares have reversed course and now sit near the foot of the Stoxx 600 with some desks citing declining orders. Volkswagen (-3%) shares are on the backfoot as better-than-expected Q3 sales figures have been overshadowed by a downgrade to margin guidance. Roche (+0.2%) has entered into a definitive agreement to acquire Telavant for a USD 7.1bln upfront purchase price and a near-term milestone payment of USD 150mln. Vodafone’s (-1.3%) CEO says they will be moving ahead with the Three merger, and intend to close the deal before end-2024. Finally, Telecom Italia (-2.8%) shares are on the backfoot after news that the Italian audit court has reportedly expressed criticism over the Treasury's intentions to join with KKR in their approach for the Co's grid.

23 Oct 2023 - 09:20- EquitiesEU Research- Source: Newsquawk