EUROPEAN EQUITY UPDATE: PMI-induced selling short-lived for Europe

Analysis details (09:35)

• European equities (Eurostoxx 50 +0.6%) are higher on the session with the PMI-induced pullback in equities short-lived. To recap the data, first up on the docket was France which saw a disappointing services print outweigh a better-than-expected manufacturing metric, resulting in the composite holding steady at prior levels of 46.6 vs. an expected uptick to 47.5. Germany followed with an unexpected slip into contractionary territory for the services metric to 47.3 from 52.3 (exp. 51.5), sending the composite further into contractionary territory of 44.7 despite a slightly better-than-expected manufacturing print (which was ultimately still at a very low 39.1). This picture was echoed by the Eurozone release whereby a disappointment for the services print (48.3 vs. Exp. 50.5) dragged the composite lower to 47.0 from 48.6. The accompanying release noted, “considering the PMI figures in our GDP nowcast leads us to the conclusion that the eurozone will shrink by 0.2% in the third quarter”. On the prices front, “the rate of input cost inflation across both sectors edged higher for the first time in 11 months”. From a policy perspective, pricing is a near coin-flip between a hike or no hike for the 20th September meeting vs. around 63% chance of a hike ahead of the French PMI.


• Asia-Pac stocks traded mixed amid a slew of earnings releases and the latest PMI data from the region but with prices kept relatively rangebound heading closer to the Jackson Hole Symposium. ASX 200 (+0.4%) was led higher by strength in consumer stocks and the mining-related sectors with the index unfazed by the weaker preliminary PMI data from Australia which showed manufacturing at a 6th consecutive monthly contraction. Nikkei 225 (+0.5%) pared opening losses after somewhat mixed PMI figures and despite Japan facing backlash from China and Hong Kong for its plan to release Fukushima water. Hang Seng (+0.3%) and Shanghai (-1.4%) were varied with trade in Hong Kong indecisive and the mainland subdued amid several earnings releases and as participants await results from China’s big banks.


• US equity futures (ES 0.6%, NQ 0.8%, RTY 0.4%) are trading on the front foot as markets attempt to make back some of the losses seen in yesterday's session, which was lacklustre in terms of newsflow. Though Fed’s Barkin (2024 Voter, Hawk) did speak in Danville, where he said consumer spending and economic strength could reaccelerate before inflation begins to cool and will not prejudge the outcome of the Fed’s September meeting. The calendar is busier today, with markets looking out for MBAs and Building Permits, though the focus will be on the PMI release, which will give a glimpse into how activity is progressing in August and will help to guide expectations for the September ISM report. Away from data releases, traders will look out for a slew of earnings, though much of the focus will no doubt be on Nvidia, who are set to report at 21:20 BST/16:20 ET. Shares of the Co. are up 220% YTD, and the suggestion is that the bar to surprise is extremely high, and many are sceptical that this may be repeated. That said, HSBC argues that despite the high expectations surrounding the stock, its full potential into the second half of 2024 and into 2025 has not yet been fully priced.


• Equity sectors in Europe are mostly higher with outperformance in Utilities, Real Estate and Basic Resources with the latter bolstered by upside in underlying metals prices. To the downside, Autos is the only sector in the red, albeit marginally and without a clear catalyst. Stock-specific updates have been on the light side with the most notable gainer in the Stoxx 600 being Roche with gains of around 4% following the inadvertent publication of lung cancer therapy study results as noted by Reuters. Elsewhere, SocGen (+1.8%) shares are higher on the session after being upgraded to overweight from equal weight at Morgan Stanley. Of note for UK stocks, ahead of the FTSE 100 quarterly review, a circular from the LSE Group has suggested that potential additions for the index include, Dechra Pharma. (DPH LN), Diploma (DPLM LN), Hikma Pharma. (HIK LN), Marks & Spencer (MKS LN), with possible deletions for Abrdn (ABDN LN), Johnson Matthey (JMAT LN), Persimmon (PSN LN), RS Group (RS1 LN).

23 Aug 2023 - 09:35- Research Sheet- Source: Newswires