EUROPEAN EQUITY UPDATE: Positivity reverberates across Europe, but sectors portray a mild defensive bias

Analysis details (10:10)

Equities in Europe have coat-tailed on the positivity seen on Wall Street yesterday and across APAC overnight – with the upside coinciding with markets paring back aggressive central bank pricing as bond yields and commodity prices pull back. US equity futures are firmer across the board – with the NQ (+0.9%) narrowly leading the pack vs the ES (+0.7%), RTY (+0.8%) and YM (+0.6%) – with participants also flagging the ES overcoming resistance at 3,800. Analysts at Deutsche Bank (in a note dated Jun 23rd), commenting on cash markets, reiterated that the outlook from here looks binary and contingent on an imminent recession in the US – "in which case, there is further downside (S&P 500 3000), or we don't in which case we see a strong rally back to this year's highs (4750)", the desk says. SPX closed at 3,796 on Thursday. Traders remain cautious, however, particularly since recent rallies have been easy to sell into as sentiment about the economic outlook remains fragile. The latest BofA Flow Show (in the week to Wednesday) showed that equities posted outflows of USD 16.8bln, whilst cash saw inflows of USD 10.8bln and gold saw its first inflow in four weeks – bond saw the largest outflow since April 2020. BofA also said its Bull & Bear indicator remains at maximum bearish. Meanwhile, Bloomberg reported that a Goldman Sachs index of global defensive stocks has climbed to more than an 18-month high relative to the MSCI AC World Index. Back to the session, cash markets across Europe are in the green but to varying degrees. JPMorgan recently warned that Euro Stoxx 50 futures positioning after the June expiry likely remains close to record-short, Bloomberg reported; and that could lead markets to respond to news asymmetrically, with a higher likelihood of sharp upside moves. Germany saw its Ifo Business Climate miss forecasts after the downbeat Flash PMI metrics yesterday, although Ifo said there are no signs of recession at the moment. Nonetheless, the DAX 40 (+0.7%) is the laggard when looking at core markets and sees its gains capped by Europe's largest online retailer Zalando (-13%), following a profit warning, in turn dragging on the European Retail sector - which fell to the lowest level since March 2020; -38% YTD at the open, and currently the sectoral laggard. Sectors overall project a modest defensive bias as Healthcare, Media, Consumer Products, and Food & Beverages reside among the winners, although Tech is also buoyed by the pullback in bond yields. In terms of individual movers, Deutsche Post (+0.9%) and Poste Italiane (+1.3%) are underpinned by FedEx (+2.8%), which rose post-earnings after EPS guidance topped expectations, alongside an additional USD 1.5bln share buyback. FedEx plans to raise package prices above the rate of inflation. Elsewhere, Saipem (-7.9%) slipped after warning that there is a risk that it will not achieve its FY22-25 targets. Finally, in M&A, Ultra Electronics (+12.7%) sits at the top of the Stoxx 600 after the Co.'s takeover by Advent International is set to be approved by the UK Business Secretary.

24 Jun 2022 - 10:09- EquitiesData- Source: Newsquawk