EUROPEAN EQUITY UPDATE: Sentiment inches higher with macro drivers thin pre-CPI

Analysis details (09:50)

• European equities, Eurostoxx50 +1.1%, are trading on the front foot as they continue to extend the strength seen in yesterday's session and in a continuation of the strength seen during APAC hours. The FTSE 100 is the European laggard with a substantial number of Cos trading ex-dividend.


• Asia-Pac stocks were mixed with the regional bourses mostly rangebound amid a slew of earnings releases and with the mood tentative ahead of incoming US inflation data, while participants also reflected on US efforts to restrict investment in some Chinese tech. ASX 200 (+0.3%) was rangebound with notable outperformance in the energy sector with oil prices at a 9-month high and following the recent surge in gas prices after workers at two LNG facilities in Australia voted to strike, although Woodside Energy has since provided some optimism on the bargaining process in which it noted that positive progress is being made and an in-principle agreement was reached on a number of issues. The Nikkei 225 (+0.9%) ultimately benefitted from a weaker currency but was initially choppy after mixed PPI data and with newsflow in Japan dominated by earnings releases which again has provided the catalysts for the biggest individual stock movers. Hang Seng (+0.2%) and Shanghai Comp. (+0.3%) were able to shrug off news that US President Biden’s executive order to ban some new investments in ‘narrow subsets’ of Chinese sensitive technologies. This includes semiconductors and microelectronics, quantum information technologies and certain AI systems, which drew criticism from China.


• US equity futures (ES +0.6%, NQ +0.6%, RTY +0.6%) are taking impetus from Europe and are trading in the green, as they attempt to recover some of the losses felt in the prior session. Today's focus will be very much on the CPI release at 13:30BST/08:30ET. Consensus is for annual CPI to tick up to 3.2% (prev. 3.0%) on general base effects. While the data will be influential in shaping expectations for the September 20th FOMC meeting, analysts note that there are still further data releases due before then that could alter the Fed’s thinking. Also due at the same time is the IJC release, which will help give further insight into the tightness of the labour market. Away from data, Fed doves Bostic and Harker are to speak. On Tuesday Harker said that sometime, probably next year, the Fed will start cutting rates, whilst Bostic previously noted that the Fed will likely be in restrictive territory well into 2024. Finally, as we come to the tail end of earnings season we await results from Ralph Lauren.


• European sectors are mainly on the front foot, with only Health Care sitting marginally in negative territory, dragged down by Novo Nordisk (-2.8%), despite reporting a strong set of earnings. The Co. beat on its Wegovy drug sales, though does note that the low-strength drug doses remain restricted in the US. These results follow a near 18% increase in its share price for the week after the Co. stated that the drug reduces the risk of major adverse cardiovascular events by 20% in adults. Looking towards the top of the pile, Insurance leads, propped up by Allianz (+3.4%) and Zurich Insurance (+2.8%) after they reported a strong set of results. Consumer Products and Services are also outperforming, being pushed higher by Luxury names including LVMH (+2.1%), Kering (+1%) and Hermes (+1.7%), who benefit from general risk-on sentiment and news that China will continue to lift Covid-19 restrictions. As for individual movers, the best performing Co. in the Stoxx 600 is Knorr-Bremse (+4.7%) after it announced strong results and raised its FY revenue guidance. Today has been exceptionally busy on the earnings front, with gainers including; Watches of Switzerland (+5.1%), Leg Immobilien (+3.7%), Thyssenkrupp (+2.9%) and towards the downside; KBC (-3.7%), Siemens (-3.1%), Rheinmetall (-1.9%).


• Overnight, the UK RICS survey indicated that the house price index fell to -53 (prev. -48 MM), the lowest level since 2009. Capital Economics writes that due to the recent rise in average mortgage rates, it will not be a surprise to see a further deterioration, and they do not expect market conditions to improve in the near term. ING notes that this will add pressure onto future BoE decisions, where a further 50bps of tightening is still priced in. For reference, Housebuilders remain modestly firmer given the overall tone.

10 Aug 2023 - 09:50- Research Sheet- Source: Newsquawk