EUROPEAN EQUITY UPDATE: Sentiment sullied by eye-watering German PPI, after hot Japanese CPI, and before a Riksbank jumbo hike

Analysis details (09:35)

Bourses across Europe have been dipping from best levels, with sentiment somewhat sullied by a marked and unexpected acceleration in German PPI, coupled with a larger-than-forecast Riksbank rate hike to kick off the myriad of G10 central banks this week. US equity futures have slipped into negative territory, but the breadth of the market remains shallow as the clock ticks down to the FOMC tomorrow, with the NQ (-0.2%) narrowly lagging behind peers as yields continue grinding higher. Back in Europe, as mentioned above, the eye-watering German PPI (YY 45.8% vs exp 37.1%) triggered the initial reversal in stocks after futures posted modest gains overnight, which also followed hotter-than-expected Japanese CPI metrics which hit three-decade highs in the run-up to the BoJ’s confab. The downside was then exacerbated as the Riksbank front-loading its rate increases as “inflation is too high”. The European picture is now mixed with sectors in the region now mostly in the red (vs a predominantly green open) with Banks the clear outperformer and beneficiary from the rise in global yields. The bias across sectors has titled more towards the defensive side, with Food & Beverages, Personal Goods, and Healthcare making their way up the ranks. The other end of the spectrum sees Real Estate and Retail the hardest hit – as a result of rate and inflation expectations. In terms of individual movers, Porsche Auto SE (+5.8%) sits towards the top of the Stoxx 600 as books opened for the Porsche AG IPO, with owner Volkswagen (+1.6%) also underpinned by the developments, although reports overnight suggested Volkswagen’s work council has raised the prospect of eventually selling more Porsche shares. In the luxury sector, Richemont (+1.3%) and Swatch (+1.9%) remain supported by a MM increase in Swiss watch exports whilst Pandora (-5.7%) is hit by a stock downgrade at Nordea. In terms of commentary, analysts at JPM do not see a clear downside for European stocks, with “low valuations vs the US provide historically meaningful cushion, while positioning in Europe is light, and yield gaps are more attractive than in other regions.”  

20 Sep 2022 - 09:35- Fixed IncomeData- Source: Newsquawk