EUROPEAN EQUITY UPDATE: Stocks eke out marginal gains with miners boosted by Chinese stimulus hopes

Analysis details (09:44)

• European equities (Eurostoxx 50 +0.2%) trade mostly firmer with divergence between regional bourses stemming from a busy corporate earnings slate as reporting season gets underway. From a macro perspective, focus remains on the fallout from yesterday’s soft PMI metrics which were indicative of contracting economic performance in the region (Today’s IFO release also conformed to this downbeat picture). Further to this, the latest Euro area bank lending survey showed that demand for loans by firms in Q2 fell to the lowest level since the survey began in 2003 as access to credit continues to be tightened. This allied with the recent soft data will be food for thought for the ECB and will likely temper some of the more hawkish views on the Governing Council over how much more tightening is required/the bloc can handle.


• APAC stocks traded mostly higher amid a rally in Chinese stocks after the Politburo’s support pledges, although gains for the rest of the region were capped after soft global PMIs. ASX 200 (+0.5%) was positive with the index led by gains in the mining and energy sectors amid recent strength in underlying commodity prices. Nikkei 225 (-0.1%) lagged as speculation remained rife regarding this week’s BoJ meeting with source reports noting the central bank is to consider a large increase in its 2023 inflation outlook. Hang Seng (+4.4%) and Shanghai Comp (+2.1%) were boosted with gains led by a surge in property and tech stocks after the Politburo’s support pledges which lifted the Hang Seng Tech Index by around 5%, while the Hang Seng Mainland Properties Index rose by a double-digit percentage from early on as the Politburo’s statement omitted the language that homes are not for speculation.


• US index futures are trading (ES +0.1%, NQ +0.3%, RTY +0.1%) just above neutral ahead of today's heavy earnings docket, which includes the likes of Microsoft (MSFT) and Alphabet (GOOG). Traders will also be cognizant of the FOMC meeting on Wednesday, ECB meeting on Thursday, and Friday's BoJ meeting. Additionally, we also get the US advanced GDP numbers for Q2 on Thursday and on Friday, we'll see the release of the PCE inflation data (the Fed’s preferred inflation gauge). Morgan Stanley's chief US equity strategist Mike Wilson admitted the bank was wrong in sticking with pessimism on equities for too long. The bank now sees the index at around 4,200 by June 2024, though they remain cautious on corporate earnings power due to softening inflation. There are no signs of such a mea culpa from JPMorgan's strategist Marko Kolanovic, who remains bearish on equities despite the market rally. He warned that aggressive interest-rate hikes by central banks, decreasing consumer savings, and geopolitical concerns could lead to market declines and increased volatility.


• Equity sectors in Europe are mixed with clear outperformance in Basic Resources amid China-inspired upside in underlying commodity prices which has propelled the likes of Anglo American (+3.9%), Rio Tinto (+3.8%), Antofagasta (+3.5%) and Glencore (+2.1%) higher. Elsewhere, the Personal Care, Drugs & Grocery sector is marching higher thanks to post-earnings gains in Unilever (+5.1%) which is also providing support for the FTSE 100 and AEX which are posting gains of 0.2% and 0.9% respectively. Unilever reported better-than-expected H1 sales and noted that it expects underlying sales growth for the full year to be above 5%, ahead of its multi-year range. To the downside, Health Care, Real Estate and Travel & Leisure names lag. In terms of stock specific updates, despite lagging at the open after cutting guidance, Bayer (+1.1%) has managed to move back into the black without any clear catalyst behind the reversal. Elsewhere, Adidas (+4.8%) shares are on the front-foot after prelim. Q2 results exceeded expectations and saw the Co. note that its underlying business (asides from Yeezy) was performing well.

25 Jul 2023 - 09:44- EquitiesData- Source: Newsquawk