EUROPEAN EQUITY UPDATE: Stocks continue to climb ahead of crucial US CPI data

Analysis details (09:18)

• European equities (Eurostoxx 50 +0.7%) once again trade on the front foot in the wake of gains seen yesterday on Wall Street after the European close. It would be a stretch to say that there has been any material independent impetus from the region on a macro front and as such today’s focus should very much be one of looking ahead to today’s US inflation data (see below). The only notable highlight on the European calendar comes via a speech from ECB Chief Economist Lane at 14:45BST who will be speaking on Macro, Money & Financial Frictions; as it stands a 25bps hike for the July meeting is priced at around 87%.


• Asia-Pac stocks were mixed with the region cautious heading into today’s key-risk US inflation data. ASX 200 (+0.4%) was positive with the index led by commodity-related sectors. Nikkei 225 (-0.8%) underperformed and fell beneath the 32,000 level amid headwinds from a firmer currency and disappointing Machinery Orders data. Hang Seng (+0.8%) and Shanghai Comp. (-0.8%) saw mixed fortunes with the Hong Kong benchmark boosted by tech strength, while the mainland was subdued.


• US equity futures are trading with modest gains ahead of today’s CPI data. Headline consumer prices are expected to rise by 0.3% M/M in June (prev. +0.1%), although the annual rate is expected to cool to 3.1% Y/Y from 4.0%; the core measure of inflation is expected to rise 0.3% M/M (slightly softer than the prior pace of +0.4%), while the annual rate of core inflation is seen cooling to 5.0% Y/Y from 5.3%.


• Ahead of the European earning season, Barclays says that it expects mixed results amid slowing yet resilient US/global growth. The desk notes that the Q2 expected Y/Y contraction of 13% is a low bar and therefore the avoidance of a large disappointment could provide some relief for stocks. That said, 2024 earnings expectations “look a stretch” and P/E upside is limited. Finally, Barclays notes that the dispersions amongst Cyclicals/Defensives and Value/Growth may lead to outsized moves.


• Equity sectors in Europe are mostly firmer with Tech names top of the pile as STMicroelectronics (+3.8%) and Infineon (+3.1%) benefit from broker upgrades at Jefferies. Insurance names are also on the front foot with AXA (+2.5%) a notable gainer within the group after Reuters suggests the Co. could opt for a sale or IPO of its reinsurance unit XL Re. Elsewhere, Basic Resource names have been supported by gains in underlying commodity prices. To the downside, Travel & Leisure names lag peers with Air France (-5.1%) and IAG (-2.7%) pressured by broker downgrades at Deutsche Bank; the former also announced a reverse share split. Of note for the UK banking sector, the BoE’s Financial Stability Report noted that “major UK banks are resilient and their capital positions remain above the ‘hurdle rate’ even under a severe stress scenario”.

12 Jul 2023 - 09:18- Research Sheet- Source: Newsquawk