EUROPEAN EQUITY UPDATE: Sideways trade on an index level whilst tech remains heavy

Analysis details (09:35)

• European equities (Eurostoxx 50 -0.1%) trade mixed/flat with the region continuing to struggle for direction amid a lack of fresh macro drivers. As we mentioned in our note yesterday, focus for the Eurozone is on next week’s ECB policy announcement, however, given how well telegraphed the expected 25bps hike has been and the data-dependency of the bank thereafter, impetus main need to be sought from outside of the region in order to get stocks back on the move.


• Asia-Pac stocks were subdued as global yields rose with tech underperforming. ASX 200 was rangebound; Australia's trade surplus narrowed in April but remains elevated. Nikkei 225 retreated as some of the recent enthusiasm for Japanese equities faded. Hang Seng and Shanghai Comp. were marginally firmer; China's Big 4 banks reduced deposit rates to support the economy, in line with official commentary this week. In South Korea, a senior BoK official warned that the degree of policy tightening has significantly lessened this year, emphasising that tightening was not over. In India, the RBI kept its Repo Rate unchanged at 6.50%, as expected, via unanimous vote; it also maintained its policy stance of remaining focused on withdrawal of accommodation via a 5-1 vote.


• US futures (ES -0.1%, NQ -0.3%, RTY +0.2%) are to a limited extent, following the same pattern seen during yesterday’s trade with weakness in the S&P 500 and underperformance in the Nasdaq after global yields climbed in the aftermath of the surprise rate hike by the Bank of Canada, while the DJIA was kept afloat and Russell 2000 extended on its recent rally in a continuation of the rotation into small caps. In terms of today’ US data docket, US Initial Jobless Claims are seen a touch higher at 235k vs a prior 232k, while Continuing Claims are seen rising a touch to 1.8mln from 1.795mln.


• Analysts at Barclays suggest that the market remains “stuck in late-cycle limbo” whereby off-benchmark risk is not well-rewarded. However, the desk has re-upgraded Small caps on account of underperformance and being viewed as an attractive long-term opportunity. Barclays sticks with its overweight for defensive quality-yield and underweight momentum which is being hampered by frequent rotations.


• Equity sectors in Europe are mixed with Basic Resource names top of the pile amid underlying strength in metals prices. Rio Tinto (+1%) is one of the better performers in the sector thanks to an upgrade to buy from neutral at Citi on account of “clear upside risks regarding potential China stimulus and there has been 3 months of underperformance by the iron ore names”. To the downside, Tech and Personal Care, Drug & Grocery names with the former tracking performance of global counterparts. In terms of stock specifics, Evotec (+8.5%) is the best performer in the Stoxx 600 following a broker upgrade by Citi to buy with the desk talking up the Co.’s recent biosimilars development/manufacturing deal with Sandoz. Finally, Crest Nicholson (-5.2%) are lagging in the UK homebuilder sector following a soft HY update in which earnings fell short of expectations and completions fell.

08 Jun 2023 - 09:35- EquitiesData- Source: Newsquawk