EUROPEAN EQUITY UPDATE: Stocks eke out mild gains in early European trade

Analysis details (09:25)

• European equities (Eurostoxx 50 +0.3%) have managed to start the week off on the front foot despite futures initially indicating a soft close. In terms of macro developments, the main story over the weekend has been news that the US House and Senate passed a short-term spending bill to keep the government funded until November 17th. Elsewhere, in a notably holiday-restricted APAC session, Chinese PMIs were a mixed bag with the official manufacturing and services metrics beating expectations whilst the Caixin measures fell short of consensus. Closer to home in Europe, this morning has seen the final release of Eurozone manufacturing PMIs with the EZ-wide metric unrevised at 43.4 and the accompanying release noting, “the latest data flagged considerable weakness across the sector, with new orders continuing to shrink at a pace that has rarely been surpassed since the survey began in 1997”.


• Asia-Pac stocks traded mixed in severely holiday-quietened conditions amid the mass closures in the region, while participants digested the key weekend developments including the US averting a government shutdown and mixed Chinese PMI data. ASX 200 (-0.2%) was lacklustre with many domestic participants absent in observance of Labour Day in Australia’s most populous state of New South Wales and ahead of tomorrow’s RBA meeting which is the first under Governor Bullock’s tenure. Nikkei 225 (-0.2%) opened above 32,000 with the index boosted by a weaker currency and an encouraging Tankan survey which showed Large Manufacturers’ Sentiment at its highest since June last year and the non-manufacturing at its highest in over three decades, although the index later pared all of the gains and eventually slipped back beneath the aforementioned key level. Hang Seng and Shanghai Comp. were shut alongside closures in South Korea and India with mainland China away the entire week for the National Day Golden Week celebrations.


• US equity futures (ES +0.6%, NQ +1%, RTY +0.5%) are firmer for the first trading day of October, with positive sentiment emanating from the news over the weekend that confirmed the US government shutdown had been averted, albeit only for 45 days. Overall, this means the Government can now fund itself up to November 17, since the bill did not contain any outlook for additional funding for Ukraine. In terms of what this means for the markets, all upcoming data (including the big NFP report on Friday) will be released as expected, which will allow the Fed to digest the key data. Back to today, the docket is packed with ISM and PMI (Final) data, with the former expected to show a slight improvement from the previous reading. Additionally, Fed’s Powell (Neutral) and Harker (Dove), are to appear at a roundtable discussion on redeveloping the local economy, with additional speak from Barr (Neutral) and Williams (Hawk) later in the session.


• Analysts at JP Morgan are of the view that the equity risk/reward remains challenging with the desk noting that “the PMI rebound that many were hoping for, the call that the weakness in manufacturing will end and join the more resilient services, remains elusive”. JPM also highlights the upmove in real rates, which is pressuring multiples, the increase in Brent and the strength of the USD, albeit believes that bond yields will not be able to keep moving up for too much longer and will end up falling. As such, “Q4 could end up a very good time to lock in the long duration trade for the next 12 months”. JPM notes that the Eurostoxx 50 has “gone nowhere for half a year now, and has lagged the US since May” and recommends remaining short on the index. From a sector standpoint the desk reiterates its recent call to close the shorts on Miners and remain overweight Energy.


• Equity sectors in Europe are mostly higher with Real Estate names top of the leaderboard; Vonovia (+2%) is a notable gainer within the group after GS hiked its price target for the Co. by 5%. Elsewhere, Basic Resource names are firmer despite weakness in underlying metals prices with Antofagasta (+2.2%) supported by a broker upgrade at Citi. To the downside, Healthcare and Media are the only sectors in the Red. Elsewhere, Citi has upgraded the European luxury goods sector to overweight “given its recent underperformance and derating, while fundamentals remain stable”. In terms of individual movers, BAE Systems (+1.7%) is higher on the session after the UK Ministry of Defence awarded the Co. with GBP 3.95bln of funding for the next phase of the AUKUS nuclear-powered submarine programme. United Utilities (+2.9%) shares are higher following its latest trading update, whilst Vivendi (+2.8%) has been boosted by a broker upgrade at Barclays. Finally, Fresenius SE (-4.2%) is one of the worst performers in the region after receiving a warning letter from the FDA in relation to the inspection of Fenwal International Inc.

02 Oct 2023 - 09:25- Fixed IncomeData- Source: Newsquawk