EUROPEAN EQUITY UPDATE: Stocks edge higher ahead of US inflation data

Analysis details (09:20)

• European equities (Eurostoxx 50 +0.3%) broadly trade with marginal gains after reversing a China-induced dip in the futures ahead of the cash open proved to be short-lived. More specifically, minor losses were observed in European and US futures after Reuters reporting noted that China plans to impose a no-fly zone north of Taiwan during April 16th-18th.


• Overall, the handover from the APAC region was a mixed one with the Nikkei 225 extending further above 28k amid a softer JPY and bullish comments from Warren Buffett on Japanese stocks whilst the Hang Seng lagged amid losses in some of its large cap names such as JD.com. Alibaba and Tencent.


• US equity futures are directionless ahead of today's key US CPI data, as well as the FOMC meeting minutes, which will both help shape expectations for the May 3rd Fed meeting, where the base case is for the central bank to lift rates by 25bps. Goldman Sachs has told its clients that the S&P 500 could fall by at least 2% if the annual rate of inflation rises from the 6.0% prior, and on the other side, the bank's analysts are expecting a stock rally if the reading comes in beneath the consensus 5.2%.


• In terms of desk commentary, Citi notes that “bearish futures positioning was back on the rise on a reduced trading week, with investors adding new short flows across S&P and Nasdaq. In Europe, markets remain net short, with marginal changes in levels as a mix of trade activity led to a small increase in net positioning”. Elsewhere, Barclays highlights that “banking stress induced a rush to Quality/Growth away from Value/Small Caps. Macro uncertainty keeps us OW Quality-Yield, which combines safety and lower valuations. But while rates upside may be capped the recent fall looks overdone. A small residual OW Value makes sense to us, supported by earnings and valuation fundamentals”.


• Equity sectors in Europe are a mixed bag with Media names near the top of the leaderboard alongside gains in Universal Music Group (+1.4%) after the FT reported that the Co. told streaming platforms including Apple (AAPL) and Spotify (SPOT) to block AI services from scraping melodies/lyrics from copyrighted songs. Other gainers include, Utilities and Industrials, whilst Tech lags to the downside, albeit breadth across sectors is relatively narrow.


• Volvo (+7.4%) sits as one of the best performers in the Stoxx 600 after prelim Q1 revenues and adj. operating profit exceeded expectations. To the downside, Petrofac (-15%) is markedly lower after recognising an additional EBIT reduction for FY22. As a reminder, LVMH reports Q1 revenue figures after the European close.

12 Apr 2023 - 09:20- EquitiesEU Research- Source: Newsquawk