EUROPEAN EQUITY UPDATE: Stocks eke out mild gains whilst geopolitics continues to grab the headlines

Analysis details (09:29)

• European equities (Eurostoxx 50 +0.1%) are broadly marginally firmer with the exception of the SMI (-0.2%) which is being weighed on by Lonza (-7.4%) after the Co. lowered its FY sales and EBITDA guidance. From a macro perspective, ahead of ZEW data at 10:00BST, there hasn’t been a great deal for markets to go off. Attention remains on the geopolitical stage amid lingering threats from Iran whilst Israel has been striking areas in Lebanon, however, at this stage of the session it has not been enough to impair the broader risk environment. Analysts at Goldman Sachs have raised their 2023 Stoxx 600 EPS growth forecast to 3% vs. prev. view of 0% with 2024 seen at 7% vs. prev. view of 5%, citing higher bond yields and commodity prices. That said, when adjusted for inflation, the growth rate falls to 2% per annum, which it notes is not “overly thrilling in an environment where US TIPS currently yield about 2.5%, with much less risk”. Overall, the desk continues to recommend a barbell approach between quality growth and value by being overweight health care and tech as well as energy and banks.


• APAC stocks were mostly positive following the gains across global counterparts which unwound the recent geopolitical hedging, although the upside was capped amid threats from Iran. ASX 200 (+0.4%) was led by outperformance in tech and telecoms, while mining names also benefitted following Rio Tinto’s quarterly update which showed an increase in iron ore shipments despite a decline in output. Nikkei 225 (+1.2%) was boosted at the open and briefly climbed above 32,000 although it has since pulled back from intraday highs and proceeded to oscillate around the key aforementioned level. Hang Seng (+0.9%) and Shanghai Comp. (+0.3%) were both positive although the mainland lagged amid developer debt concerns with Country Garden on the cusp of a default as the grace period for a USD 15mln coupon payment expires today and with an Evergrande unit to seek creditor approval to extend yuan-denominated bonds.


• US equity futures are flat with the ES oscillating around the 4400 mark. For today’s session, Fed's Williams' comments will be eyed in the context that he previously suggested that there were ample signs that inflation pressures were waning, and suggested that the Fed may be done with rate rises, although left the door open for another hike should the situation require; Williams also reiterated that the Fed would need to keep policy restrictive for some time in order to bring inflation back to target. There is also key data and earnings due today that have the potential for macro impact (German ZEW; US Retail Sales, Industrial Production, Business Inventories; Fed's Williams, Bowman, Barkin, Kashkari, as well as the Fed’s Discount Rate Minutes; ECB's de Guindos; key US corporate earnings today include BAC, GS, LMT, JNJ).


• Equity sectors in Europe are mostly firmer with outperformance in Real Estate, Health Care and Utilities, whilst Basic Resources is the clear laggard to the downside alongside softness in most underlying metals prices, whilst Rio Tinto’s (-1%) quarterly update has been unable to inspire an uptick in its share price. Umicore (+17.4%) is by far the best performing stock in the Stoxx 600 after news that it is to receive up to CAD 1bln from the Canadian government and the Province of Ontario for a new plant producing EV battery components. Rolls Royce (+2.1%) shares are higher on the session after news the Co. is to lay off up to 2,500 staff globally. St James Place (+2%) is now higher on the session after opening with losses of around 5% following its quarterly update in which it reported an increase in closed funds under management as well as announcing a simplification of its client charging models which will lower underlying cash results over the next few years. On a less encouraging footing, Ericsson (-8.3%) is one of the worst performing stocks in the Stoxx 600 after post-Q3 results which will hampered by a previously announced SEK 2bln impairment charge. Finally, UK homebuilders are softer following a poorly-received FY23 earnings release from Bellway (-1.3%) in which it noted that "Since the start of the new financial year, customer demand continues to be affected by mortgage affordability constraints, with reservations below the comparative rates in the prior year".

17 Oct 2023 - 09:29- Research Sheet- Source: Newsquawk