EUROPEAN EQUITY UPDATE: Stocks cheer further soft EZ inflation metrics

Analysis details (09:35)

European equities (Eurostoxx 50 +1.3%) have extended on yesterday’s gains as further soft Eurozone inflation metrics, this time from France, have added to the dovish impulses of yesterday’s German release. It remains to be seen how exactly this will play into the narrative surrounding the ECB with the Eurozone-wide release due on Friday and the German release impacted by one-off factors, with some desks suggesting that core inflation in Germany may have actually risen last month. Nonetheless, stocks are in a jubilant mood with gains in Europe following on from a constructive APAC handover whereby Chinese property names were bolstered by reports of further support measures and Alibaba shares soared over 8% after Jack Ma's Ant Group reportedly won Chinese approval for its USD 1.5bln capital plan. US equity futures are trading higher (ES +0.3%, NQ +0.5%, RTY +0.4%), in tandem with their European counterparts, albeit the ES is still around 40 points from reclaiming 3900 to the upside. Today’s economic releases will provide crucial insight on the inflation, growth and labour market fronts, with the release of the December ISM Manufacturing survey (headline expected to slip by half-a-point to 48.5), November JOLTS data (job openings are seen easing to 10mln from 10.3mln), and the FOMC’s December meeting minutes (where officials looked through some nascent signs of progress in tackling rampant inflation in favour of a hawkish showing). Deutsche Bank forecasts a 15% increase for European stocks this year amongst a backdrop of fewer macro risks and reduced rate volatility with a year-end Stoxx 600 target of 495 vs. current circa 437. Sectors in Europe are mostly firmer with the exception of Energy and Basic Resource names with the former dragged lower by the ongoing decline in the crude space. To the upside, outperformance is observed in Consumer Products, Insurance and Retail names. Sanofi (+0.6%) has flagged that it expects a positive FX impact in Q4 results which would amount to a 4.5-5.5% positive impact on sales and 6-7% on business EPS. Supermarket data from Kantar showed “take-home grocery sales increased by 7.6% in the 12 weeks to 25 December 2022” with discount retailers Lidl and Aldi showing impressive Y/Y sales growth of 23.9% and 27% respectively. Finally, Ryanair (+0.7%) recorded 11.5mln passengers in December, which was a 3% increase on its prior pre-COVID high with expectations of 166.5mln passengers in the year ending March (vs. previous record of 149mln).

04 Jan 2023 - 09:35- Research Sheet- Source: Newsquawk