EUROPEAN EQUITY UPDATE: Stocks eke marginal gains ahead of pivotal US CPI

Analysis details (09:30)

Stocks in Europe are trading modestly firmer (Eurostoxx 50 +0.3%) with stocks in the region bolstered after the late rally on Wall St as indices looked to claw back some of the lost ground from Friday. The session follows on from a mixed APAC lead whereby Hong Kong benefitted from reopening optimism amid reports that quarantine-free travel is to begin in January and with Chief Executive Lee announcing an easing of restrictions, while the mainland lacked conviction after weaker-than-expected financing data and with Japan and the Netherlands agreeing in principle to join the US in controlling exports of chipmaking equipment to China. Stateside, US futures (ES +0.1%, NQ +0.2%, RTY unch.) are lingering just above the unchanged mark with the ES unable to make a sustained breach above the 4k mark. The highlight on the data slate is US November CPI data, which will help shape expectations for the Fed's hiking trajectory; a 50bps rate hike tomorrow is almost a done deal, according to money market pricing, but the data will help inform expectations of where terminal could lie. As part of a scenario analysis, JP Morgan has suggested that in the most likely scenario whereby Y/Y CPI prints between 7.2-7.4% (vs. consensus of 7.3%) the S&P 500 could rise by 2-3%, whilst in the event that inflation prints at 6.9% or below, given the defensive nature of positioning, the index could rise by as much as 10%. In a downside scenario for the market, JPM says that the S&P 500 could fall as much as 5% if CPI exceeds 7.8%. Elsewhere, the latest BofA Fund Manager Survey showed “Investors are bearish on growth, bullish China reopening, very bullish inflation and bonds, bearish on the USD, are short covering their stock positions, particularly in tech, emerging markets and Europe”. Sectors in Europe are a mixed bag with energy names top of the pile amid support from underlying prices with other gainers including Travel & Leisure and Tech. To the downside, Utilities and Media names lag. In terms of stock specifics, Deutsche Lufthansa (+4.5%) shares spiked after raising 2022 guidance with the Co. now forecasting EBIT of around EUR 1.5bln vs. their previous view of “over EUR 1bln” and noting strong demand for air travel. Elsewhere, Roche’s (+0.8%) CEO confirmed the Co’s FY22 outlook and plans for an increased dividend. To the downside, Rolls Royce sits at the foot of the FTSE 100 after being reiterated underweight at JP Morgan.

13 Dec 2022 - 09:30- EquitiesData- Source: Newsquawk