EUROPEAN EQUITY UPDATE: Risk-off reverberates across Europe; Netflix slumps pre-market

Analysis details (09:46)

Major European bourses consolidate with losses (Euro Stoxx 50 -1.3%; Stoxx 600 -1.5%) as the wide-spread risk aversion from the failed relief rally on Wall Street reverberated across APAC overnight before seeping into Europe – although the Stoxx 600 is currently +0.5% on the week. The key theme of the central bank pivot remains as the clock ticks down to the Fed’s policy announcement on the 26th, while there has been little in terms of fresh fundamental catalysts to spur price action aside from the continuous punchy geopolitical rhetoric - as US Secretary of State Blinken, and Russian Foreign Minister Lavrov gear up for what could be a crucial meeting in terms of the “next move”. US equity futures have been clambering off worst levels since the Chinese cash open, but hold a downward bias not far off yesterday’s lows – with the NQ (-0.6%) lagging vs the YM (Unch), ES (-0.3%), and RTY (-0.1%) as Netflix sees pre-market losses of over 20% post-earnings following downbeat subscriptions and lacklustre outlook. Back to Europe, cash markets see broad-based losses across the board, although the FTSE 100 (-0.9%) and Swiss SMI (-0.9%) are somewhat cushioned by their heavyweight healthcare names as the sector is one of the lesser hit. Delving deeper, sectors are all in the red but the classic defensives fare slightly better than cyclicals: Food & Beverages (-0.1%), Personal Household Goods (-0.9%), Healthcare (-1.0%) all sit at the top of the chart whilst the downside sees Basic Resources (-2.8%), Autos (-2.7%), Oil & Gas (-2.6%) and Travel & Leisure (-2.5%). Again, individual movers seem to be dictated by the macro environment, but Siemens Gamesa (-13.5%) and Siemens Energy (-11.3%) have both plumbed the depths to the foot of the Stoxx 600 after profit warnings. Looking at commentary on European equities, analysts at Barclays suggested that Value has almost continuously underperformed Growth since 2006, “while the rotation may lose steam, for now, the still very high valuation and ownership of Growth stocks in the backdrop of tightening liquidity, normalizing EPS growth and smarter ESG investing could push investors to seek a more barbell approach, and gradually rebalance towards Value.”, the bank suggests. Separately, Morgan Stanley is bullish on UK stocks and suggests a leg higher in real yields to -0.10% “would imply 10% outperformance of the UK versus Europe”, whilst the defensive and dividend attributes in UK stocks make it more fundamentally appealing in volatile markets. Meanwhile, as earnings season in Europe gets underway, strategists at UBS “continue to forecast far stronger EPS growth in 2022 than consensus in Europe (15% vs 7%), given reasonable operating leverage coupled with decent corporate pricing power”. Next up, BoE's Mann, ECB's Lagarde, BoJ's Kuroda will make appearances before the US cash open, whilst the US large-cap (+USD 100bln) earnings docket is empty.

21 Jan 2022 - 09:46- Fixed IncomeEconomic Commentary- Source: Newsquawk