EUROPEAN EQUITY UPDATE: Stocks attract mild gains ahead of blockbuster US CPI

Analysis details (09:30)

European equities (Eurostoxx 50 +0.2%) trade with marginal gains in an extension of yesterday’s solid start to the week. Today’s price action takes place in the context of a lack of fresh macro drivers for the region and a mixed APAC handover; Japanese GDP data showed the economy returning to growth in Q4, albeit at a slower-than-expected pace, while its government nominated academic Kazuo Ueda as the next BoJ Governor, as expected. US equity futures are trading broadly flat ahead of today’s CPI release. January CPI is expected to see the monthly rates continue to rise, although annual rates are seen paring back (headline seen falling to 6.2% Y/Y from 6.5%; core seen falling to 5.5% Y/Y from 5.7%). Today's US CPI data will help inform expectations of Fed rate hikes whereby markets currently assign a 90% chance that the Fed raises rates by 25bps to 4.75-5.00% at its March 22nd meeting. Markets see the Fed hiking to the 5.00-5.25% terminal rate in May, where it is expected to remain until the end of this year, with money market pricing imply a 40% chance that rates will be cut in December (back to 4.75-5.00%). The BofA Fund Manager Survey for February revealed that positioning in equities remains low despite investors being the least pessimistic in a year, adding that equity allocations are net 31% underweight vs. the low from September 2022 of net 52%. Sectors in Europe are higher across the board with Telecom names top of the pile amid gains in Vodafone (+3.9%) after news that Liberty Global acquired a 4.92% stake in the Co.; but says is not considering a full offer for Vodafone. The Travel & Leisure sector is also faring well post-earnings with the Co. also highlighting "encouraging booking momentum for current Winter and Summer 2023”. easyJet (+3.7%) is also benefitting from a broker upgrade at Deutsche Bank to buy from sell, whilst Flutter Entertainment (+1.5%) is higher amid reports that the Co. is mulling a US listing. To the downside, Thyssenkrupp (-6.6%) is one of the worst performers in Europe post-results which saw the Co. report a decline in adj. EBIT margin driven by lower material prices. Finally, Delivery Hero (-3.9%) is another notable laggard following a convertible bond launch.

14 Feb 2023 - 09:30- Research Sheet- Source: Newsquawk