EUROPEAN EQUITY UPDATE: Stocks climb and FTSE 100 benefits post-GDP

Analysis details (09:30)

• European equities (Eurostoxx50 +0.2%) are trading on a firmer footing, with minor underperformance in the IBEX 35 (U/C) amid losses in Repsol (-2.1%) and Telefonica (-1.6%) (details below). The FTSE 100 (+0.3%) marginally outperforms, benefitting from a weaker Pound, post UK GDP data. The early-morning release showed GDP in October was estimated to have posted a surprise contraction of -0.3% on a 3m/3m basis (exp. 0.0%, prev. 0.2%). October’s drop in GDP adds to the growing list of recent downside data surprises, but "we still doubt that the MPC will change its tune and signal its willingness to cut Bank Rate next year as soon as this week’s meeting," Pantheon Macroeconomics said. Over to Germany, the IW Economic Institute said the German economy was expected to contract by 0.5% in 2024 due to the budget crisis, adding that "in the worst case scenario, a decline of one percentage point was even possible." The docket thins out for the European session, with only EZ Industrial Production to be released, where the focus will turn to US PPI and the Fed Policy Announcement thereafter.


• European sectors are mixed with a slight positive bias, though the breadth of the market to the upside is fairly narrow; Chemicals is the clear outperformer, propped up by gains in BASF (+3.4%) and Arkema (+3.6%) after the Cos received broker upgrades at UBS. To the downside, Telecommunications continues the prior days’ losses after yesterday's reports that the UK’s OFCOM has proposed a ban on inflation-linked mid-contract price increases; Vodafone (-1.9%) and BT (-1.1%) continue to dip lower. Energy is also found towards the foot of the sectoral list, hampered by losses in the underlying crude prices; broker downgrades at Repsol (-2.1%) and Shell (-0.4%) are also adding to the negative sentiment. In terms of individual movers, Inditex (+1.4%) initially opened lower though has been edging higher throughout the session, after the Co. reported a mixed set of results and raised its FY23 margin. Entain (+3.5%) benefits from news that Jette Nygaard-Andersen is stepping down, effective immediately. Telefonica (-1.6%) is posting losses possibly on reports that the board recommends acceptance of a voluntary public acquisition offer for shares of Telefonica Deutschland (O2D GY).


• Asia-Pac stocks traded mixed with participants cautious heading into the FOMC announcement. ASX 200 (+0.3%) was led by strength in healthcare after Sigma shares surged by over 70% shortly after the return from a trading halt and the recent announcement of a merger with Chemist Warehouse. Nikkei 225 (+0.3%) was underpinned by an encouraging Tankan survey which mostly beat expectations and showed sentiment amongst Japan’s large manufacturers and non-manufacturers was at the highest since March 2020 and November 1991, respectively. Conversely, the KOSPI (-0.8%) was pressured following an uptick in the Unemployment Rate, while the Hang Seng (-1.0%) and Shanghai Comp. (-1.1%) also declined despite the detailing of China’s policy focus for next year and support pledges, as the statement from the Central Economic Work Conference refrained from any major stimulus announcements.


• US equity futures (ES +0.2%, NQ +0.2%, RTY +0.2%) are trading on firmer footing, posting gains similar to their European counterparts, as attention turns to US PPI and the much-awaited Fed Policy Announcement. The Fed is all but certain to keep rates unchanged on Wednesday at 5.25-5.50% with a focus on the accompanying SEPs ('Dot Plot') to gauge the magnitude of cuts in store for 2024 and beyond. HSBC, who introduced an S&P500 end 2024 PT of 5,000, points out that the index returns an average of 22% between the first Fed pause and six months after the first cut, if a recession is avoided, and has a soft landing in its base case scenario. Fed Chair Powell will appear at 19:30 GMT / 14:30 ET in a press conference, where his commentary will be closely followed for any potential pushback to the recent dovish market pricing.

13 Dec 2023 - 09:34- Research Sheet- Source: Newsquawk