EUROPEAN EQUITY UPDATE: Stocks a touch firmer as NFP looms

Analysis details (09:31)

• European equities (Stoxx 600 +0.4%) trade on the front-foot with the Stoxx 600 on track to close the week out with gains of around 1.7%. In terms of today’s macro narrative, data releases have included the final prints for Eurozone PMIs with the EZ-wide metric revised a touch lower to 43.5 from 43.7. The accompanying report noted "...all of the twelve subindices have moved upwards or remained practically unchanged, showing that the downward trend from the past few months is starting to lose steam across the board." That said, following yesterday's inflation metrics, greater focus is on how policymakers assess the balance of risks ahead of the September 14th meeting. On which, recent remarks have included comments from Spain’s de Guindos who said this month’s decision is still up for debate and data in the next few days will be key. Elsewhere, France’s Villeroy stated that inflation peaking is an encouraging sign but options are open at the next and upcoming meetings. Despite some mixed commentary over the past 24 hours, it appears that policymakers are not willing to explicitly commit one way or the other to a pause/hike and therefore it may be the case that market participants will to some extent have a degree of uncertainty heading into the September showdown.


• APAC stocks traded mixed following a similar lead from Wall Street, whilst Hong Kong markets were closed due to Typhoon Saola. ASX 200 (-0.4%) was weighted by its metals, and materials names as the index declined further under the 7,300 mark. Nikkei 225 (+0.4%) opened in the red but quickly trimmed losses with the rebound spearheaded by the energy sector. KOSPI (+0.3%) was underpinned by the South Korean trade data which printed better than feared, whilst Samsung shares rose 3%, possibly amid tailwinds from stellar Dell earnings stateside. Shanghai Comp (0.4%) opened firmer after large Chinese banks cut their deposit rates, while the PBoC also lowered down payment for first and second-time home buyers and announced a cut to the FX RRR.


• US equity futures (ES +0.2%, NQ +0.1%, RTY +0.3%) are trading a touch firmer as the ES & RTY attempt to make back some of their losses. The focus yesterday was the headline PCE data, which printed at 3.3% above the prior 3.0%, whilst core rose slightly to 4.2% YY (prev. 4.1%). Overall, the data was generally in-line with expectations, though is beneath Fed Chair Powell's forecast of 4.3%, perhaps allowing the Fed to lean on the dovish side. This coupled with recent cooling in the labour market (JOLTS on Tuesday, ADP on Wednesday, and Challenger Layoffs on Thursday), has sparked some more optimism that the US economy will achieve a soft landing. However, the IJC print yesterday of 228k (prev. 230k, exp. 235k), fell to five-week low, with OxEco noting that whilst the labour market is cooling, it is being “accompanied by very few layoffs”. This brings us to the big NFP report due at 13:30 BST / 08:30 ET. The number of jobs added is expected to cool to 170k (prev. 187k). With various Fed speakers bringing focus to the release in recent weeks, the report will most definitely be a decisive factor in future Fed policy decisions. Away from the labour market, traders will await ISM Manufacturing PMIs, speak from Fed’s Mester and GDP release out of Canada.


• Equity sectors in Europe are mostly firmer with Energy names the clear outperformer amid a combination of elevated crude prices and Morgan Stanley upgrading the sector to overweight with individual upgrades for the likes of Equinor (+1.7%), Galp Energia (+2.3%) and Repsol (+3.4%). On the European equity space more broadly, Morgan Stanley believes that Europe “offers the highest total yield globally as the region has embraced buybacks like never before”. To the downside, auto names lag peers with Renault (-4.1%) and Volkswagen (-3.2%) downgraded to sell from neutral at UBS. Elsewhere, Aurubis (-15.3%) is by far the worst performer in the Stoxx 600 after noting that it has been the target of a huge theft with damages potentially in the 3-digit million EUR range. As such, the Co. will not achieve prior FY EBT guidance of EUR 450-550mln; Salzgitter, which owns a circa 30% stake in the Co. is subsequently lower by 6.2%.

01 Sep 2023 - 09:31- Research Sheet- Source: Newsquawk