EUROPEAN EQUITY UPDATE: Stock markets hold onto China-induced gains as ECB’s Sintra Forum gets underway

Analysis details (10:24)

Europe was primed for somewhat of a directionless open with futures overnight showing little volatility, but sentiment picked up heading into the cash open amid encouraging Chinese COVID headlines, whereby international travel quarantine times have been cut, whilst Shanghai Disneyland is also poised to open despite more cautious headlines yesterday. These back-to-back headlines bolstered risk appetite at the time – US equity futures saw a leg higher in tandem with global counterparts as traders look ahead to a myriad of central bank speakers as ECB’s Sintra Forum gets underway, whilst the data-docket sees US PCE and EZ CPI at the back end of the week. Nonetheless, equities cash and futures hold some of the China-induced upside, with the RTY (+0.7%) narrowly outperforming the ES (+0.5%), NQ (+0.5%), and YM (+0.6%). Heading into earnings season (with US banks reporting on July 14th), analysts at Goldman Sachs, against the backdrop of inflation, believe that US profit margins are too optimistic. “We continue to recommend investors focus on stocks where they can be relatively confident in the forward trajectory of earnings, including firms with stable growth and the Health Care sector, which has grown earnings in each of the last several recessions,” GS said. Meanwhile, Morgan Stanley yesterday telegraphed similar caution on earnings expectations - the bank warned that analysts “need a reality check about their earnings projections for this quarter.” Back to the session, Europe holds onto gains (Euro Stoxx 50 +1.0%, Stoxx 600 +0.6%), with ECB’s Kazaks and President Lagarde the first to give remarks from the Sintra Forum – the former suggested it’s worth looking at a 50bps hike in July, although the base case is 25bps, whilst the latter offered little in the way of fresh insight into thinking of the ECB. Sectors are mostly in the green with no clear theme. Base metals and Energy reside as the current winners and commodities feel a boost from China’s COVID updates. The downside, however, sees Healthcare, Real Estate and Technology. In terms of individual movers, Adidas (+0.3%) initially opened with losses after Nike (-2.5% pre-market) missed on North American and Chinese revenue expectations, whilst guidance was also framed as disappointing. Elsewhere, Siemens AG (+1.4%) saw a couple of pre-market M&A headlines - Volkswagen (+1.0%) is said to be nearing a deal to sell its stake in Electrify America to Siemens, according to WSJ sources. The deal would value Electrify America at over USD 2bln. Separately, Siemens is to buy US building maintenance software company Brightly Software from Clearlake for USD 1.58bln. Credit Suisse (+1.5%) said it remains firmly focused on delivering on its strategic plan during this year despite a challenging market environment. Finally, Saipem failed to open once again following the results of its capital hike.

28 Jun 2022 - 10:24- Fixed IncomeData- Source: Newsquawk