EUROPEAN EQUITY UPDATE: Stocks broadly shrug off opening losses, FTSE 100 mulls latest CPI metrics

Analysis details (09:26)

• European equities (Eurostoxx 50 +0.2%) trade mixed/slightly firmer after shrugging off mild opening losses with no clear or obvious catalyst behind the move. The main macro focus for the region has been on UK inflation metrics, whereby headline Y/Y CPI cooled to 6.8% in July, matching both the market consensus and MPC forecast. The core Y/Y metric held steady at 6.9% (vs. exp. 6.8%), whilst the “all services” reading advanced to 7.4% from 7.2%. In response to the data, Capital Economics says the BoE will press ahead with another 25bps rate hike in September. It says that the failure of core inflation to fall was worrying, and with the labour market still tight and wage growth strengthening, it thinks that services inflation will remain high for some time yet. Looking ahead on the docket, the 2nd reading of Eurozone GDP for Q2 and IP metrics for June are unlikely to move the dial for the market.


• Asian stocks were pressured following the declines on Wall St amid the broad risk-off mood, which was triggered by global macro headwinds, in particular, the recent slew of weak data from China. ASX 200 (-1.5%) was lower with the declines led by the large industries, while participants also digested earnings releases and a softer leading index. Nikkei 225 (-1.4%) extended on losses and dipped beneath the 32,000 level as all major bourses suffered from the falling tide across stocks. Hang Seng (-1.2%) and Shanghai Comp. (-0.8%) remained pressured amid China growth concerns as recent poor data releases prompted several banks to cut their growth forecasts for the world’s second-largest economy including JPMorgan which now anticipates 4.8% GDP growth for China this year, while the latest House Price data also showed a contraction Y/Y to add to the ongoing developer woes. Later in the session, Bloomberg reported that China asked for some funds to avoid net equity sales as the market sinks.


• US equity futures (ES +0.3%, NQ +0.4%, RTY +0.4%) are trading slightly firmer as some positive sentiment attempts to return following yesterday’s closes. Yesterday’s session was packed with data releases, with a focus on MM Retail Sales, which saw a 0.7% increase, higher than both the prior and expected, 0.2% and 0.4% respectively. Analysts at Pantheon do attribute the surprise beat on Retail Sales to the latest Amazon Prime Day with others also noting the recent “Barbenheimer” popularity, driving consumers into cinemas. Overall, the figure is a testament to the resilience of the US market and adds to the more hawkish sentiment that has arisen since the last FOMC meeting. Fed’s Kashkari also spoke yesterday, where he stated that the Fed can take a little more time to observe the data to see if they need to raise rates more, though he is not ready to say that they are done raising rates. This comes ahead of today's FOMC Minutes (July), which is likely to err on the dovish side, based on the comments made by Powell in his last press conference. On the data front, the market will look out for the MBA release, Building Permits, and Industrial Production. Additionally, traders will await earnings from Target, Cisco, TJX and JD.com, with the latter expected to report in pre-market trade.


• Barclays notes that European earnings season has seen Q2 beats keep equities afloat with solid margins making up for a softer top line. The desk adds that “while more companies are cautious on the economy, guidance and capital returns remain steady”. Looking ahead, Barclays notes that EPS revisions for FY23 are tracking flat growth, whilst risks loom for 2024. From a sector standpoint, analysts suggest that resilient earnings look mostly priced for cyclicals but not banks. Elsewhere, Citi suggests that after a solid H1, outperformance by the US may “go on pause”; Citi recently downgraded US to neutral whilst upgrading Europe and EM to Overweight. The desk adds that the increasing plausibility of a soft-landing scenario should help outperformance of cyclicals. Looking ahead, Citi sees potential for market volatility in the near term but expects around 10% upside by the middle of next year. From a sector standpoint it’s strategy “tilts towards a mix of Quality and selective Cyclicals”.


• Equity sectors in Europe have a positive bias with Retail names once again top of the leaderboard with Marks & Spencer (+3.3%) enjoying another session of gains following yesterday’s solid trading update. Elsewhere, the insurance sector has benefitted from earnings from Admiral Group (+7.2%) and Aviva (+1.9%) with the former top of the Stoxx 600 and helping to support other names such as Direct Line (+6.9%). To the downside, Telecoms narrowly lag peers with Telefonica Deutschland (-1%) an underperformer within the sector following a broker downgrade at JP Morgan Chase. In terms of individual updates, negative post-earnings movers include Balfour Beatty (-3.9%) which is the worst-performing stock in the Stoxx 600, whilst Carlsberg (-2.5%) shares are also on the backfoot, albeit it is worth noting that Co. shares were supported yesterday after raising guidance. Finally, for the Italian banking sector, Italy's Deputy PM has called for a watered-down version of the government's bank windfall tax, whereby the levy will only apply to the incomes of larger lenders that are overseen by the ECB, according to FT citing Italian press.

16 Aug 2023 - 09:26- EquitiesData- Source: Newsquawk