EUROPEAN EQUITY UPDATE: Soft German data and hawkish not weighs on stocks

Analysis details (09:25)

• European equities (Eurostoxx 50 -0.8%) trade on the backfoot as sentiment for stocks remains subdued. This morning once again saw downbeat data for Germany with industrial orders falling well short of expectations (-11.7% vs. Exp. -4.0%). Despite some mitigating factors, it was another piece of data which has helped to underscore the issues facing the engine-house of Europe with the release followed up by the latest projections from IFW which cut its 2023 GDP forecast to -0.5% from -0.3%. Sentiment further deteriorated alongside a pick-up in yields following hawkish remarks from ECB’s Knot who stated that markets may be underestimating the chance of a September hike, noting that the decision will be a close call. Accordingly, pricing for a 25bps hike this month rose from around 25% to circa 33%. Knot is clearly trying to reshape the narrative ahead of next week’s meeting and therefore it can be assumed that doves on the ECB either directly or via sources will attempt some sort of pushback in the coming sessions.


• Asian equity markets traded mostly in the red following the subdued handover from Wall Street where sentiment was clouded by the higher yield environment, a stronger dollar and rising oil prices. ASX 200 (-0.8%) was dragged lower by underperformance in tech and with most sectors pressured aside from energy which benefitted from the higher oil prices, while better-than-expected GDP data for Australia failed to inspire a turnaround. Nikkei 225 (+0.8%) bucked the trend after it reclaimed the 33,000 status with tailwinds from a weaker currency after the Yen retreated to a fresh YTD low. In early trade, Hang Seng (Unch.) and Shanghai Comp. (+0.1%) declined amid tech weakness although losses were stemmed as some developers surged amid hopes of further policy support measures and with Sunac up by more than 60% after its recent return to the Stock Connect. Towards the end of the session, Chinese markets climbed back into the green, possibly as Chinese Premier Li revived some optimism about the country's economy by saying he expects around a 5% economic growth target this year. Additionally, SCMP reported that the Hong Kong Financial Task Force is to meet today to bolster stock market turnover and fundraising activity.


• US equity futures (ES -0.2%, NQ -0.4%, RTY -0.1%) are trading lower with markets continuing the negative sentiment seen in overnight trade. The docket was thin in yesterday's session, with highlights including Durable Goods (-5.2% - unchanged from prior) and Employment Trends. The headline slipped to 113.02 (prev. 114.71 M/M), with the accompanying report suggesting the index remains elevated, but the rate of growth may lessen and will switch to job losses. More interestingly, markets digested commentary from two Fed hawks. In an interview with CNBC, Waller said the Fed will move carefully and the future of further hikes will depend on incoming data. Traders noted that these comments were perhaps less hawkish than typically expected by the member. Mester, on the other hand, continued her hawkish rhetoric by saying the cost of undershooting monetary policy at the moment is still higher, and that she can well imagine the Fed might have to raise the policy rate a bit more, though did stress data-dependency. Looking towards the day ahead, markets will await US PMI, Services ISM and speak from Fed’s Collins (Neutral) & Logan (Hawk).


• Barclays notes that its base case is for modest upside as long as the soft landing for the US economy is on track. The desk notes that the path to higher markets is “tricky” as “global macro headwinds keep goldilocks in check” and bonds/cash look more attractive. Barclays sticks to a barbell cyclical/defensive allocation and looks for US vs. rest of world performance to “stabilise”.


• Equity sectors in Europe are mostly lower with Consumer Products & Services lagging peers amid continued losses in some of the region’s luxury names. Elsewhere, underperformance can also be seen in Personal Care, Drug & Grocery names, Health Care and Travel & Leisure. To the upside, Telecoms sit in positive territory amid gains in Telefonica (+2.2%) after news via Reuters that Saudi's STC Group has amassed a 9.9% stake in the Co., worth circa EUR 2.1bln. Elsewhere in terms of individual updates, Swiss Life (+2.4%) is another gainer in the region following H1 results and the announcement of a CHF 300mln buyback. On a less encouraging footing, earnings have acted as a drag on Barratt Developments (-1.9%) as trading conditions weighed on FY23 profits. Finally, Bloomberg sources report that UBS (-1.3%) is weighing options to renegotiate the Apollo deal, as the Co. is not happy with the terms Credit Suisse agreed to regarding selling large parts of the business to Apollo Global Management.

06 Sep 2023 - 09:25- Research Sheet- Source: Newsquawk