EUROPEAN EQUITY UPDATE: Stocks ebb lower as European earnings pick up

Analysis details (09:35)

• European equities (Eurostoxx 50 -0.2%) mostly trade with modest losses in a scaling back of yesterday’s upside. The main macro development in the region has stemmed from the UK inflation data, which, although cooled from the prior on a headline basis, exceeded expectations and was accompanied by a sticky core print. As such, a 25bps hike by the BoE is priced at close to 100% for May.


• The handover from the APAC region was a lacklustre one in the absence of any major positive macro drivers and following the flat handover from Wall Street.


• US equity futures (ES -0.4%, NQ -0.5%, RTY -0.3%) are in the red in a session devoid of tier 1 macro releases from the US and a speaker slate which includes 2023 voter Goolsbee. After hours earnings from Netflix yesterday saw the Co. beat on the bottom line but miss on subscriber additions and Q2 guidance, resulting in an initial double-digit percentage drop in its shares. However, its shares then fully recovered after the dust settled with the Co. planning to accelerate share repurchases and as some suggested the weak Q2 outlook was due to the decision to push back the broad launch of the paid-sharing plan from Q1 to Q2, which points to a timing lag rather than a demand issue. The Big Banks and the regional banks that have reported so far have put in a mixed performance, but one of the takeaways is that the issues in the financial sector seen in March have not spread just yet. Analysts at Capital Economics this week said they retained a downbeat view on the outlook for the banking sector, and are wary of banks' exposure to the CRE.


• As European earnings season gets underway, Barclays suggests that Q1 earnings should reflect solid economic growth whilst big cuts to estimates have left room for beats. Barclays adds that as long as financials hold up, a deep FY23 earnings recession is unlikely, however, cyclical leadership has waned and it expects more dispersion. Elsewhere, Citi has warned that equities and other risk assets will likely take a hit as central banks withdraw as much as USD 600-800bln of stimulus in the coming weeks. "With peak liquidity past, we would not be at all surprised if markets were now to experience a sudden pressure loss," Citi said."


• Equity sectors in Europe have a negative tilt with underperformance in Real Estate followed by Technology and Basic Resources. Of note for the tech sector, Dutch chip machine maker ASML (-2.6%) shares are lower post-earnings which saw the Co. beat estimates but highlight caution amongst some of its customers; note, the Co. has a 7.8% weighting in the Eurostoxx 50. Antofagasta (-2.3%) is a notable laggard in the Basic Resources space after Q1 copper output declined. To the upside, Food, Beverage and Tobacco names are top of the leaderboard after Q1 results from Heineken (+2.2%) which saw the Co. maintain guidance despite a miss on Beer Volume expectations. Other notable movers include Just Eat Takeaway (-2.9%) which failed to hold onto opening gains after Q1 results saw the Co. report declining orders and GTV. Worldline (+5.7%) is the best performing stock in the Stoxx 600 after entering into exclusive discussions with Credit Agricole to create a major player in merchant services in France. Finally, Glencore (-0.7%) says it is open to considering improvements to the Teck proposal and is willing to make an offer directly to Teck shareholders.

19 Apr 2023 - 09:35- EquitiesEU Research- Source: Newsquawk