EUROPEAN EQUITY UPDATE: Stocks extend on gains, but a slew of central bankers lay ahead

Analysis details (09:59)

Equities in Europe opened higher and extended on gains in early trade as the region coat-tailed on the optimism overnight with sentiment soothed as China’s COVID situation overall improves. US equity futures also grind higher following the lacklustre Wall Street session as participants today face a slew of Fed speakers including Fed Chair Powell. Credit Suisse remains cautious on global equity markets. “Recession risk remains very high. We believe that US GDP needs to slow to 1% to push up the employment rate in order to slow wage growth sufficiently. This requires a 3.5% to 4% Fed funds rate which, in turn, causes the yield curve to invert in Q4 (leading to a ‘soft’ hard landing in 2H 23)”, with other factors cited including: no upside on their valuation models, elevated earnings risks, credit flashing caution, and no Fed put (amongst a couple of others). “A bear market can occur up to 13 months ahead of a recession”, the Swiss desk posits. Back in Europe, Euro-bourses lead the charge (Euro Stoxx 50 +1.6%; Stoxx 600 +1.6%) with relatively broad-based gains seen across the majors and peripheries. The UK’s FTSE 100 (+0.6%) is the regional laggard as the export-heavy index is capped by the surge in Sterling following all-round hot UK jobs and wage metrics. UK traders however remain on guard as UK Foreign Secretary Truss is set to unveil the UK's plan for new legislation that will override parts of the Northern Ireland protocol (Newsquawk analysis available here). Elsewhere, the Swiss SMI (+1.1%) sees its upside capped by an underperformance in defensive sectors – with Europe seeing Personal Goods, Food & Beverages, Healthcare and Telecoms towards the bottom of the table. Sectors in general paint a pro-cyclical picture with Industrial Goods, Basic Resources, Energy, and Travel & Leisure among the current winners. In terms of individual movers, earnings have boosted the likes of Imperial Brands (+6.0%), Daimler Trucks (+4.9%) and Engie (+5.9%), the latter also raised its FY guidance. Conversely, Vodafone (-1.0%) shares are hampered as inflation remains a concern on forward earnings. In terms of the latest in the Twitter saga, Musk said that his offer was based on the Co.'s SEC filing being accurate, however, yesterday the CEO refused to show proof of less than 5% of fake/spam accounts and the deal cannot move forward until this has been disclosed. Pre-markets at the time of writing see Twitter -1.9% and Tesla +3.7%.

17 May 2022 - 09:59- Fixed IncomeResearch Sheet- Source: Newsquawk