EUROPEAN EQUITY UPDATE: Sentiment revived by EU unity, but caution remains

Analysis details (10:15)

The revival of broader sentiment coincided with source reports that the EU is said to be unveiling a potentially large-scale bond issuance to fund defence and energy spending, with the proposal poised to be presented next week and the emergency summit next week. Stocks saw a boost after initially deriving the downbeat mood from APAC markets. US equity futures caught a bid in tandem with their European counterparts – but to a lesser extent; ES (+0.3%), NQ (+0.2%), RTY (+0.4%), YM (+0.1%), and the US docket is also light today (aside from US bond supply) and with the Fed observing its blackout period ahead in the run-up to next week’s meeting. Back to Europe, the picture is mostly positive (Euro Stoxx 50 +1.6%; Stoxx 600 +0.8%) after the DAX 40 and Euro Stoxx 50 closed in technical bear market territory yesterday, but the upside momentum has waned as news flow quietened down. The FTSE 100 (+0.2%) and SMI (Unch) fail to garner more traction due to the aforementioned Euro-specific sources. In terms of analysis, Barclays and Citigroup, in a note before the recent pickup in stocks, suggest that new short positions have been added on European equity futures as a result of the war – with net shorts nearing the highs seen at the peak of the March 2020 COVID shock. Barclays posits “Euro Stoxx 50 futures appear to have been a ‘go to’ hedge as people looked to hedge their underlying cash equity positions”. Delving deeper into sectors, the configuration has flipped from that picture at the open, with Banks now at the top of the bunch as yields surge intraday, closely followed by Utilities and Insurance. Energy is firmer but off best levels. Basic Resources has declined toward the bottom of the ranks as base metals dwindled after the LME halted nickel trading after the overnight short squeeze; nickel-miners Anglo American (-1.0%), BHP (-3.6%) and Glencore (-1.1%) fail to benefit from the rise. Conversely, Fresnillo (+4.0%) benefits from its earnings which entailed a positive outlook for the precious metals sectors. In terms of other individual movers, Telecom Italia (+10%) is firmer with reports citing rekindled hope of a deal with KKR, despite the latter downgrading their offer price as per Il Messaggero.

08 Mar 2022 - 10:14- MetalsResearch Sheet- Source: Newsquawk