EUROPEAN EQUITY UPDATE: Stocks continue their end of summer slump

Analysis details (09:25)

• Stocks in Europe (Eurostoxx 50 -0.2%) are extending their negative run as they struggle to catch a bid following the recent uptick in yields. Fresh macro drivers for the region are lacking and instead direction is being gleaned from elsewhere, following downbeat sessions for the US and APAC regions with the former dragged lower following yesterday’s strong ISM data. Closer to home, markets are bracing for any last-minute comments from ECB officials ahead of the blackout period. More specifically, it will be interesting to see if any of the more dovishly-inclined members of the governing council attempt to wrestle back the narrative from the hawkish tone adopted by Knot and Kazmir yesterday whereby the former suggested markets may be underestimating the odds of a September hike and the latter said one more hike is still needed.


• Asian equities were pressured as the region took its cue from the losses stateside where stocks and bonds declined in the aftermath of hawkish ISM Services data, while participants also digested the latest Chinese trade data. ASX 200 (-1.2%) was dragged lower by underperformance in the commodity-related sectors and amid the key data from Australia’s largest trade partner. Nikkei 225 (-0.7%) swung between gains and losses with early support from a weaker currency and reports that the Japanese government will put together economic measures around October, although the index later succumbed to the selling pressure. Hang Seng (-1.3%) and Shanghai Comp. (-1.1%) conformed to the downbeat mood as the latest Chinese trade data showed a continued contraction in the nation’s exports and imports but was not as bad as feared, while tech stocks were pressured by frictions after the FCC chair asked US government agencies to address the threat posed by Chinese cellular connectivity modules and a lawmaker called for an investigation into SMIC for potentially violating US sanctions by supplying components to Huawei.


• US equity futures (ES -0.4%, NQ -0.7%, RTY -0.1%) are trading weaker as they continue to extend losses after finishing in the red yesterday. Equities opened lower amid downbeat Chinese sentiment and were led lower after the hotter-than-expected ISM services. The print highlighted the headline rising to 54.5 (prev. 52.7, exp. 52.5), which renewed fears that inflationary pressures may be returning. Although this had little impact on Fed market pricing for future hikes, it did push back the first fully priced cut to July 2024 from June 2024. Taking attention back to today, the docket is thin, with the only notable data release coming by way of US Initial Jobless Claims. The figure is expected to rise to 234k (prev. 228k) and will give an update on the health of the labour market. Amid this, there are a number of Fed speakers including Fed’s Goolsbee, Bowman, Logan, Harker, Williams & Bostic. In terms of stock specifics, reports overnight suggested China are broadening the Apple (AAPL) iPhone ban to state firms and agencies, following a WSJ piece yesterday, that suggested the Co’s phones had been banned in Government buildings. Shares are seen lower by 1.8% in pre-market trade, which has been weighing on the NQ, making it the major laggard amongst US futures.


• Equity sectors in Europe are mostly lower with Basic Resources the standout laggard amid softness in underlying metals prices. Other laggards include Tech and Financial services, whilst minor outperformance is seen in Health Care and Insurance names with the latter supported by a post-earnings jump in Direct Line shares (+14.6%) which sits at the top of the Stoxx 600. Elsewhere, in terms of individual updates, Melrose (+8.2%) is the second-best performing stock in the region post-H1 results and an earnings upgrade, whilst Scor (+1.9%) shares have been supported after the Co. launched a new strategic plan. To the downside, H1 results have acted as a drag on Beazley (-7.4%), whilst LSE Group (-1.6%) are lower after a consortium sold an aggregate of circa. 25.5mln shares in the Co. with gross sale proceeds of circa. GBP 2bln.

07 Sep 2023 - 09:25- EquitiesEU Research- Source: Newsquawk