EUROPEAN EQUITY UPDATE: Sluggish start for stocks ahead of a risk-packed week

Analysis details (09:35)

European equities (Eurostoxx 50 -0.5%) have started the week on the backfoot following the late selling pressure on Wall St on Friday and a soft APAC session overnight. Chinese stocks were pressured despite a further easing of COVID restrictions, which has spurred concerns of a potential jump in cases, while property and tech stocks were the worst hit with the latter not helped by reports of the US asking Japan to join its ban on China chip exports. There has been a lack of fresh incremental macro updates from Europe aside from concerns over cold weather conditions across the region. As such, traders are looking ahead to Thursday’s ECB rate decision which is expected to see policymakers step down to a 50bps cadence of rate increases, whilst potentially unveiling some details over how its QT programme could work and when it would be implemented. Stateside, US equity futures are trading a little beneath neutral, likely eying a huge week for the US economic narrative, with the release of inflation data on Tuesday, the FOMC rate decision on Wednesday, and November retail sales data on Thursday. Goldman Sachs reiterated that it sees the S&P 500 falling to 3,600 in H1 2023, before rebounding to 4,000 by the end of next year, although it notes that many of its own clients are expecting a more bearish outcome. In the event of a recession, GS thinks that the index could slip as low as 3,150. Goldman says that even if the US were to avoid a recession, earnings could fall next year due to more margin compression than it is expecting. Elsewhere, Morgan Stanley noted that equities are failing to reflect earnings risk, adding that an implied equity risk premium of 225bps for the S&P 500 means that the risk/reward is “very unattractive” given 2023 projections. Sectors in Europe are lower across the board with underperformance in Real Estate, Retail and Basic Resource names. In terms of individual movers, CHR Hansen (+26%) is top of the Stoxx 600 and Novozymes (-10%) is at the bottom of the index following news that the Cos are to create a leading global biosolutions partner through a statutory merger of the two companies. LSE Group (+3.9%) is the best performer in the FTSE 100 following news that Microsoft is to purchase approx. 4% equity stake in LSE, via the acquisition of shares from Blackstone/Thomson Reuters consortium. Airbus (+1.4%) have been lent support by a Reuters sources piece noting that Air India is close to placing landmark orders for as many as 500 jetliners, worth 10s of billions from Airbus and Boeing. To the downside, Clariant is a laggard on account of a circa CHF 225mln asset impairment, whilst Asos (-5.8%) is also seen lower following a Bloomberg report stating that the Co. is reportedly discussing with lenders on whether a restructuring expert should be hired.

12 Dec 2022 - 09:35- EquitiesData- Source: Newsquawk