EUROPEAN EQUITY UPDATE: soft data keeps stocks cautious amid a data-dependent ECB

Analysis details (09:39)

European equities (Eurostoxx 50 -0.3%) have kicked the week off on a cautious/mixed footing with core bourses typically softer whilst peripheral markets are in marginal positive territory. The backdrop for today’s session saw hawkish commentary from ECB officials with perhaps the most notable being from Latvia’s Kazaks who endorsed the 150bps of rate hikes priced in by next June and labelled the weak EUR as a “problem”. Furthermore, the EU’s approach to gas reductions between August and March appears to be far from harmonious with reports in the FT suggesting that some nations are looking to water down the current proposals. Cause for concerns also emanates from uncertainty over whether the delivery of the NS1 turbine will lead to a boost in gas flows, whilst US Secretary of State Blinken said Russia has breached grain deal commitments following the attack on the port of Odesa. From a data perspective, this morning’s IFO metrics followed suit to last week’s soft PMI metrics and fell short of expectations whilst painting a dour outlook for the German economy. The APAC session was predominantly softer with the region following suit to the US tech-led declines on Friday. Also, reports in the FT suggest China is said to be mulling categorising US-listed Chinese firms into three groups based on the sensitivity of data held by the firms. Stateside, futures are hugging the unchanged mark (ES unch, NQ +0.1%, RTY +0.1%) in what is a particularly busy week for US earnings with 30% of S&P 500 companies due to report. Furthermore, this week will also see the Fed come to market with an expected 75bps hike with traders looking to Chair Powell for guidance on whether the central bank signals similar moves ahead. Goldman Sachs notes that recent moves in FX are sharpening investor focus on the impact of USD strength on equities, noting “Our top-down S&P 500 earnings model shows that a 10% appreciation in the trade-weighted dollar should reduce EPS by 2-3%”. Sectors in Europe are mixed with Banking names topping the leaderboard with Italian banking names seeing some reprieve from recent declines, albeit the domestic situation in Italy remains vulnerable as the campaigning for the September 25th election gets underway. To the downside, energy names lag, in-fitting with price action in the crude complex. In terms of stock specifics, Philips (-9.9%) is the standout laggard in the region after soft Q2 results were met by a reduction in guidance. Uniper (-8.8%) is also enduring another session of heavy losses amid ongoing uncertainty over the German gas-supply situation as well as last week’s government bailout announcement.

25 Jul 2022 - 09:39- Fixed IncomeData- Source: Newsquawk