EUROPEAN EQUITY UPDATE: Stocks ebb lower in quiet European trade

Analysis details (09:36)

• European equities (Eurostoxx 50 -0.7%) have kicked the week off in a choppy manner before ebbing lower alongside a lack of incremental catalysts for the region to digest. The main data release for today’s session has come in the form of German IFO data which saw the Business Climate marginally exceed expectations (85.7 vs. Exp. 85.2), however, this has failed to materially impact the landscape for the Eurozone. Rhetoric from ECB officials via Villeroy of France has noted that the recent increase in oil prices won’t derail the ECB’s fight to tame inflation and stated that patience is more important than raising rates further. Looking ahead, tier 1 data highlights for the region are lacking, however, the speaker slate features appearances from ECB President Lagarde and Schnabel, both at 14:00BST with the former speaking before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament.
  


• Asia-Pac stocks traded mixed albeit with a mostly negative bias following the lack of major catalysts from over the weekend and amid Chinese developer woes, while attention this week turns to data releases and the US government shutdown deadline. ASX 200 (+0.1%) traded marginally lower overnight, with losses in mining stocks and financials ultimately overshadowed by resilience in the consumer and tech sectors. Nikkei 225 (+0.9%) outperformed amid stimulus hopes with the government considering 5yr-10yr tax benefits for firms producing semiconductors and storage batteries, as well as providing support in areas where private-sector firms face high entry risk and will reportedly boost take-home pay for part-time workers. Hang Seng (-1.9%) and Shanghai Comp. (-0.6%) were pressured amid developer-related concerns with Evergrande shares down more than 20% after it cancelled its creditor meeting set for early this week and is scrapping its USD 35bln debt restructuring plan, while the Co. said it is unable to issue new debt under the present circumstances citing an investigation into its subsidiary Hengda Real Estate. Furthermore, China Aouyuan shares dropped by over 70% at the open on a resumption of trade following a 17-month hiatus.


• US equities (ES -0.3%, NQ -0.4%, RTY -0.3%) are now trading soft, following last week's subdued trade. The week starts off fairly slow, with the notable data point today coming by way of US National Activity Index, with markets also looking out for comments from Fed’s Kashkari (Hawk), who is due to speak after the US cash close. Traders will also be eyeing developments regarding a US government shutdown after GOP Rep. Graves said Republicans are considering a stopgap government funding measure that would range from 14 to 60 days and warned that letting funding lapse would be a mistake. As for the rest of the week, the docket begins to pick up on Thursday, where the US GDP (Final) and weekly US IJCs are to be released, ahead of the all-important US PCE, to be released on Friday. Looking at individual equities, Nike received a downgrade at Jefferies and its shares are seen lower by 1.0% in pre-market trade. As a reminder, the Co. is set to report earnings on Thursday.


• In terms of sectoral performances, Goldman Sachs put Energy in focus for the week. Analysts have noted that Energy stocks have returned +2% MM (vs. -1% for S&P 500), though believe going forward the upside will be modest in the near term. It notes that investors will have to balance the potential benefit from higher oil prices, with the higher recessionary risks led by rising prices in the complex. Sticking with oil, the bank also believes that higher oil prices will create input cost pressures for various industries including; Passenger Airlines, Construction Materials and Air Freight, all of which typically lag when oil prices rise. In terms of equities as a whole, GS suggests that recent increases in bond yields have been less growth-driven, which has caused equities to struggle in the past month. Analysts noted that when yields rise alongside weaker growth expectations, the P/E multiple contracted by an average of -2.0%.


• Analysts at JP Morgan JPM suggest it sees the Growth-Policy trade-off as challenging into year-end. This comes as the market is pricing a no-landing scenario “with VIX at lows, credit spreads tight, and, until recently, a big rally in Cyclicals”, whilst on the other hand, “the market expects 80bp of easing in 2H of next year, just ahead of US elections”. JPM suggests this is an “unlikely combination”. As such, the desk believes that “Defensives will be having a bid into year-end” whilst advising a tactically less negative call on China and on commodities; calls for “CSI to bounce vs SPX and SX5E.”


• Equity sectors in Europe are a mixed bag with healthcare names top of the pile alongside gains in AstraZeneca (+1.8%) after the Co. was upgraded to buy from hold at Jefferies. Elsewhere, the Italian banking sector is on the front foot after reporting by Reuters that the government has revisited the windfall tax on banks to give lenders the option to boost reserves instead of paying a levy, according to Reuters. To the downside, Travel & Leisure names lag peers with Entain (-8.7%) bottom of the Stoxx 600 after noting that post-summer net gaming revenue has been softer than expected and now expects group online NGR for FY23 to be up low double-digit percent. Basic Resource names are also suffering alongside softness in underlying commodity prices amid Chinese property developer woes. In terms of stock specifics, SBB (+22%) shares are flying after announcing a reorganising of its business, securing cash in the process and concluding its strategic review. Finally, a broker upgrade at BNP Paribas has boosted shares in Ubisoft (+4.6%), whilst a downgrade at RBC (-2.8%) has acted as a drag on Klepierre.

25 Sep 2023 - 09:36- EquitiesData- Source: Newsquawk