EUROPEAN EQUITY UPDATE: Risk on the back foot as geopolitics heats up ahead of the US jobs report tomorrow

Analysis details (09:49)

• Stocks in Europe have drifted slightly lower following a mostly negative cash open and after choppy sessions on Wall Street and across APAC, as Fed Chair Powell reaffirmed his hawkish view but clarified that the Fed has not yet made a decision, while the region also digested weak data releases including softer-than-expected Chinese inflation. The downbeat mood comes amid a heightened geopolitical landscape whereby Russia unleashed a barrage of missiles on Ukrainian cities overnight, with reports from the Ukrainian side suggesting Moscow used six hypersonic missiles – with participants awaiting confirmation from the West. Furthermore, scheduled risk events remain in focus with Friday’s US NFP report on the horizon. Traders will frame the February jobs data in the context of the FOMC’s March 22nd meeting. Chair Powell this week has guided expectations towards a 50bps rate rise at that meeting and suggested that the FOMC is likely to revise its view of the terminal rate higher. Accordingly, the bar for further hawkish repricing is higher than the bar for any dovish tweaking to that pricing (the former being likely in the event of an upside surprise, and the latter in the event of a downside surprise). The reaction will likely be largely premised on the headline and then the wage components. It is also worth noting that expectations for that March meeting will be refined by the CPI data for the month, which is due on March 14th – the full Newsquawk NFP Preview is available in the Research Suite. Since the European cash open, US equity futures have been tilting lower with the tech-heavy NQ the current laggard as bond yields remain elevated - (ES -0.3%, NQ -0.6%, YM -0.1%, RTY -0.3%).


• 
  Major bourses in Europe are subdued across the board (Euro Stoxx 50 -0.4%; Stoxx 600 -0.4%) and have very modestly extended on opening losses, with the European events docket also on the lighter side. The Swiss SMI (-0.9%) is the regional laggard as heavyweight Novartis (-3.8%) trades ex-div, while Credit Suisse (-4.2%) sees more woes after it announced a technical delay to the publication of its FY22 report following a late call on March 8th from the US SEC. Sectors in Europe are mostly lower with the deepest losses seen across the Basic Resources and Real Estate sectors, with the latter weighed on by LEG Immobilien (-10.5%) post-earnings, while UK homebuilders are also subdued as the RICS Housing Survey fell to the lowest since April 2009 in a high-interest rate environment. On the flip side, Insurance is the only sector in the green at the time of writing with Aviva (+3.2%) lifting the sector. Elsewhere, ASML (-0.8%) sees losses amid reports the Dutch government is to inform Parliament of a plan to further restrict chip tech exports, according to Reuters sources. ASML said it doesn't see new Dutch export controls affecting longer-term scenarios, nor does it affect its 2023 outlook. Earnings-related movers today include Hugo Boss (-1.7%), Siltronics (-3.2%), Vivendi (-1.1), and Deutsche Post (+2.5%), among others.


• 
  In terms of analyst commentary, JPMorgan strategists believe that the US earnings were not as bad as expected but it confirmed emerging cracks in corporate fundamentals. The desk suggests earnings consensus is still elevated going in H2, with consensus margins to climb from H1. “Large-cap balance sheets are healthy for now but small caps and private sector could see material deterioration from higher rates and that could eventually affect large caps through demand loss, lower margins and/or asset write-downs as well as credit losses, the desk writes.

09 Mar 2023 - 09:50- Research Sheet- Source: Newsquawk