EUROPEAN EQUITY UPDATE: PMI woes add further pressure on stocks

Analysis details (09:38)

• European equities (Stoxx 600 -0.3%) trade on the backfoot with the Stoxx 600 on track to close the week out with losses of around 2.6% since Monday’s open. Sentiment in the region remains subdued in the wake of Eurozone flash PMIs, whereby soft outings from France and Germany in which the former saw a sub-50 print for the services sector, filtered into the bloc-wide print. More specifically, EZ manufacturing slipped further to 43.6 from 44.8, services declined to 52.4 from 54.5, leaving the composite just about in expansionary territory of 50.3. The accompanying report noted "after Eurozone GDP fell for the second time in a row in the first quarter, the probability has increased somewhat that the GDP change will again carry a negative sign in the current quarter". The UK release also underwhelmed with declines in services and manufacturing dragging the composite lower to 52.8 from 54 and the accompanying report noting “…the UK economy has lost momentum again after a brief growth spurt in the spring, and looks set to weaken further in the months ahead".


• Asia-Pac stocks failed to sustain an early positive bias and faltered throughout the session. ASX 200 (-1.3%) was lower with the declines led by underperformance in energy and with the mood not helped by an inverted yield curve and after Australia’s flash manufacturing PMI remained in contraction territory. Nikkei 225 (-1.5%) gave back its early gains and then some, as participants digested mixed inflation data from Japan, while Japan’s manufacturing PMI also slipped beneath the 50 benchmark level. Hang Seng (-1.6%) was pressured on return from the Dragon Boat Festival with the index dragged lower by heavy losses in healthcare, tech and property amid headwinds from rising global yields and as Stock Connect trade remained shut due to the holiday in the mainland.


• US equity futures (ES -0.4%, NQ -0.5%, RTY -0.6%) are also lower on the session with the ES just about managing to maintain 4400 status. The macro narrative in the US hasn’t changed much this week with a lack of incremental data points or Fed-speak to materially alter the landscape as Fed Chair Powell has largely reaffirmed his messaging from last week’s press conference. Today sees the release of flash PMIs for the US, however, these often take a backseat to the more widely-followed ISMs. Furthermore, greater focus will likely fall on next Friday’s PCE print as traders continue to assess the likelihood of a July hike.


• According to the latest Bloomberg News survey, the consensus is for the Stoxx 600 to fall to 451 by year-end, which implies downside of around 1.3% from when the survey was taken. Bloomberg notes that within the survey, Deutsche Bank, ING and Goldman Sachs are the most bullish on the index (target of 480) with the latter of the view that stocks will be supported by declining inflation, peak rates and positive growth in real incomes. At the more bearish end of the spectrum, BofA looks for a 15% decline by year-end to 390 on account of a weakening in the US which will impact global growth in the coming months. The latest BofA Flow Show revealed that USD 5bln left equities in the week to June 21st with the regional breakdown showing: USD 5.7bln out of US (1st outflows in 4 weeks), USD 2.4bln into Japan (inflows for 3 weeks), USD 2.6bln out of Europe (15th consecutive week), USD 0.3bln out of EM (1st outflows in 4 weeks).


• Equity sectors in Europe are mixed with energy names the clear laggard alongside softer energy prices and heavy losses in Siemens Energy (-35%) after the Co. withdrew guidance following its decision to initiate an extended technical review of Siemens Gamesa’s installed fleet and product designs which could cost in excess of EUR 1bln. Elsewhere, UK homebuilders have been pressured following a raft of broker downgrades at HSBC following yesterday’s 50bps hike by the BoE; Barratt Developments (-1.5%), Bellway (-1.6%), Berkeley Group (-3.3%), Crest Nicholson (-2.6%), Persimmon (-2.0%), Redrow (-2.7%), Taylor Wimpey (-1.6%). On a more positive footing, Healthcare is the standout outperformer with GSK (+2.3%) top of the Stoxx 600 following news that it has settled its Zantac litigation case. Finally, after being suspended yesterday due to a negative report from Gotham Research, SES-imagotag opened lower by some 56%.

23 Jun 2023 - 09:38- Research Sheet- Source: Newsquawk