EUROPEAN EQUITY UPDATE: Stocks build on opening gains whilst Direct Line dents the insurance sector after scrapping its dividend

Analysis details (09:40)

European equities (Eurostoxx 50 +0.7%) have extended on the gains seen at the cash open with gains coming in the context of the pick-up in US stocks after the European close yesterday. Incremental macro developments are somewhat lacking for the region with a slew of ECB speakers due on today’s docket, albeit market pricing and ECB guidance are clearly pointing towards a 50bps hike next month. Stateside, US futures are marginally firmer (ES +0.2%, NQ +0.2%, RTY +0.2%) with the ES around 30 points below yesterday’s 3973.25 high. Traders are beginning to sharpen their focus on Thursday's US CPI data release for December, ahead of crucial bank earnings on Friday. Consensus currently expects that the December CPI data will show another paring back in annual rates of inflation, and while that will likely give legs to further stock upside, analysts at JPMorgan have been telling their clients that they continue to be bearish, and have argued that the S&P 500 will likely re-test the lows seen in 2022; accordingly, JPM has been telling clients to fade any near-term rallies. Elsewhere, Barclays has stated that it has started building a small overweight position in European small caps, which “should benefit from easing stagflation headwinds, post sharp underperformance in '22”. Barclays added “we still like Value given supportive earnings/valuations fundamentals, but neutralised our Growth UW on peaking rates in Nov.” Sectors in Europe are mostly firmer with outperformance observed in Real Estate, Retail and Basic Resource names. JD Sports (+6.4%) has helped support the retail sectors and stands at the top of the Stoxx 600 after the Co. reported strong Christmas trading metrics and now expects headline PBT ex-items at the top-end of market expectations. To the downside, Insurance is the only sector in the red following chunky losses for Direct Line (-28.4%) after the Co. scrapped its dividend following a significant increase in claims had a significant impact on its underwriting result for 2022; this has weighed on the likes of Admiral (-7.4%) and Aviva (-4%). Bayer (+2%) remains in focus after activist Investor Bluebell Capital Partners reportedly built an undisclosed stake in the Co. and is pushing for a breakup and overhaul of corporate governance, via Bloomberg citing sources. LVMH (+1.9%) is firmer after announcing a personnel shake up which will see new CEOs for Louis Vuitton and Dior. Finally, Sainsbury’s (-1.7%) is lower on the session despite flagging that profits are expected to be towards the upper-end of the of its guided range with focus potentially on the tricky consumer outlook for 2023.

11 Jan 2023 - 09:40- Research Sheet- Source: Newsquawk