EUROPEAN EQUITY UPDATE: Sentiment in Europe turns more constructive while the FTSE MIB and FTSE 100 trade on either end of the spectrum

Analysis details (09:05)

• Equities in Europe trade with an upward bias and have marginally extended on the modest gains exhibited at the cash open, as sentiment is seemingly more constructive following a mixed APAC handover and a varying Wall Street close on Friday. To recap, APAC stocks were mixed; China's Hang Seng and Shanghai Composite were pressured due to a narrower-than-expected cut in the 1yr Loan Prime Rate, whilst the 5yr (mortgage reference rate) was surprisingly left on hold, in turn offsetting recent support efforts for the economy. Australia's ASX 200 was slightly lower due to weak financials and defensives despite gains in energy and tech. Japan's Nikkei 225 rose after the announcement of a record increase in the minimum hourly wage, though it briefly dipped on China's benchmark rate news.


• US equity futures tilt firmer with gains similar to their European counterparts (ES +0.3%, NQ +0.5%, RYT +0.4%, YM +0.2%) as traders brace for this week’s annual Fed Jackson Hole symposium, with Chair Powell slated to speak on Friday. SGH Macro’s Tim Duy suggests “Chair Powell will likely follow the recent messaging from Fed speakers while noting that if growth remains stronger than expected, the Fed will need to respond with higher rates.” while adding that “[Chair Powell] might have an interest in downplaying recent comments from Fed speakers suggesting a mechanical response of policy rates to lower inflation as very speculative at this point.” On that note, WSJ's Fed-whisperer Timiraos wrote in an article over the weekend that higher productivity and increased deficits could raise the neutral rate of interest rates, limiting Fed cuts, and suggested the era of historically low-interest rates could be over.


• Over in Europe, the region trades with gains (Euro Stoxx 50 +0.6%; Stoxx 600 +0.4%), but bourses are firmer to varying degrees. The FTSE MIB (+1.1%) outperforms, with the upside spear-headed by Italian banks as Italy could partly reimburse banks for the new profit tax, according to Corriere – in turn boosting the likes of UniCredit (+2.1%), Bper Banca (+2.3%), Intesa Sanpola (+1.5%), and BMPS (+2.2%). Conversely, the UK’s FTSE 100 (+0.2%) sees its upside hampered by a double whammy of bearish updates for the housing sector - Crest Nicholson (-10.8%) cut its FY profit view amid tough trading conditions, and stated "The group does not, therefore, expect to see a material improvement in trading conditions before its year-end at 31 October 2023." Add to that, the UK Rightmove House Price Index MM for August fell 1.9% (Prev. -0.2%), with Rightmove noting "The biggest monthly fall for August since 2018, twice as steep as the typical decline during summertime...Average asking prices for homes were 2% below the May peak." Peers Rightmove (-2.0%), Berkeley Group (-2.2%), Barratt Developments (-2.2%), Persimmon (-2.5%), and Taylor Wimpey (-3.3%) all trade lower in sympathy. As such, the pan-European Real Estate sector is the clear laggard (Europe 600 Real Estate -1.0%) while Energy (Europ 600 Energy +1.3%) sits as the current best performer as crude oil and nat gas prices react to supply-side risks via Australian LNG exports and the US Gulf of Mexico during hurricane season.

21 Aug 2023 - 09:05- Research Sheet- Source: Newsquawk