EUROPEAN EQUITY UPDATE: Sentiment tilts lower ahead of US jobs following the global sell-off on Thursday

Analysis details (09:30)

• Stocks in Europe have tilted lower since the cash open despite a lack of fresh newsflow to dictate price action, although the ongoing slow/no growth coupled with higher interest rates for longer remain the main negative force for the complex. Yesterday, Euro Stoxx 50 closed lower by almost 3%, whilst US markets also saw losses, albeit ended the session off worse levels. APAC stocks overnight were mostly lower amid spillover selling from global peers. ASX 200 suffered its largest intraday drop since March with real estate and tech front running the declines across all sectors as Australian bond yields climbed. Nikkei 225 slumped at the open following disappointing Household Spending data which showed a surprise monthly contraction although the index bounced off its lows and recouped around half of the earlier losses. KOSPI was dragged lower by weakness in index-heavyweight Samsung Electronics after its preliminary Q2 earnings in which operating profit topped forecasts but slumped by 96% Y/Y. Hang Seng and Shanghai Comp conformed to the downbeat mood as growth concerns and trade frictions lingered and with little hope of any breakthrough during US Treasury Secretary Yellen’s trip to China.


• US equity futures traded sideways overnight before tilting lower, with the contracts subdued across the board (ES -0.2%, NQ -0.3%, and RTY -0.4%). Traders will note that the US jobs report will be out in the European afternoon, which will likely shape the macro narrative as we head into the weekend. Labour market proxies were mixed in June: initial jobless claims spiked in the comparable survey week, with the four-week moving average higher heading into the June data; within the S&P Global flash PMI data, the employment sub-indices eased, though remain above the 50-mark, which separates expansion and contraction; the ISM manufacturing data saw employment fall into contraction, but the services gauge saw the employment index rise into expansion; ADP’s gauge of payrolls growth spiked higher in the month, while Challenger Layoff numbers tumbled lower. Currently, markets are expecting the Fed to lift rates in July, and it is assumed that only a very significant miss along with weakness in other metrics will derail that plan; meanwhile, some of the strong data released this week has seen expectations of the Fed terminal rate rise, to 5.45% in November 2023 (Full preview available on Newsquawk).
  


• Back in Europe, futures were initially guiding for a modestly firmer session, although the upside dissipated heading into the open with cash markets opening mixed. Thereafter, stocks continued to decline (Euro Stoxx 50 +0.5%; Stoxx 600 -0.4%) with little by way of fresh factors to drive price action in the morning. Sectors are mostly lower with the outperformers today being yesterday’s laggards and vice versa – Basic Resources and Travel & Leisure reside in the green while Media and Telecoms sit at the foot of the pile. In terms of individual movers, the chemical name Clariant (+4.9%) resides as the Stoxx 600 winner at the time of writing following their earnings and guidance which were received well – in turn lifting its peers Wacker Chemie (+3.9%), BASF (+3.2%) and Lanxess (+2.8%) in sympathy. Elsewhere, Shell (-0.3%) is subdued as it noted post-tax impairments of up to USD 3bln are expected for Q2’23, primarily driven by a 1% increase in the discount rate used for impairment testing, although losses are cushioned by the resilient oil prices this morning. Coloplast (-5.9%) meanwhile sits as one of the Stoxx 600 laggards as it is to acquire Kerecis for up to USD 1.3bln.

07 Jul 2023 - 09:30- Fixed IncomeData- Source: Newsquawk