EUROPEAN EQUITY UPDATE: Stocks extend Tuesday’s slump as yield bite

Analysis details (09:25)

• European equities (Eurostoxx 50 -0.7%) are enduring another session of losses after yesterday’s dour performance with risk-assets seemingly suffering at the hands of higher on yields both sides of the pond. From a macro perspective, not a great deal has changed for the region with this morning’s final Eurozone services PMIs largely confirming the picture painted by the flash release which was one of a slowing pace of expansion. As such, impetus is likely to be gleaned from elsewhere via broader macro trends. Moving forward, attention will be on Threadneedle Street whereby the BoE is expected to step down to a 25bps cadence of rate hikes. There are outside calls for the Bank to stick to a 50bps increase as well as a potential three-way split. In the absence of no major surprises, attention will turn to how the MPC guides markets towards further tightening whether qualitatively or quantitatively via the forecasts in its MPR. Albeit, given the BoE’s ropey forecasting track record, the market will likely treat such projections with caution.


• Asia-Pac equity markets mostly followed suit to the weakness seen in global peers including on Wall St where stocks and bonds were pressured by the US rating downgrade, AMD earnings and hot ADP data, albeit with some of the losses stemmed in Asia as participants digested the latest Chinese Caixin Services and Composite PMI figures. ASX 200 (-0.6%) was dragged lower by weakness in tech after the similar underperformance of their US counterparts, with sentiment not helped by softer monthly exports and a continued contraction in quarterly retail trade. Nikkei 225 (-1.6%) was pressured as Japanese yields edged higher and with newsflow dominated by earnings. Hang Seng (-0.4%) and Shanghai Comp. (+0.6%) were choppy with the latter clawing back losses in the aftermath of somewhat mixed Chinese Caixin Services and Composite PMI data in which Services topped forecast at 54.1 (exp. 52.5) but the Composite reading slowed to 51.9 (prev. 52.5).


• US equity futures (ES -0.5%, NQ -0.7%, RTY -0.5%) are trading lower as they continue the risk-off sentiment from the prior session. Yesterday, ADP National Employment printed at 324k (prev. 455k), well above the expected 189k, further evidence of a tight labour market, though supports the existing Goldilocks narrative. It is important to note that wage growth continued to cool, with job-stayers seeing an annual pay increase of 6.2% (prev. 6.4%). The docket for today is packed with various data releases, including IJC, Factory Orders and ISM Services. The markets will also keep a keen eye out for comments from several Fed members including Barkin, Bostic & Goolsbee. The day is also busy on the earnings front, with important companies such as Apple and Amazon reporting along with ConocoPhillips, Regeneron Pharmaceuticals and Warner Bros Discovery.


• Equity sectors in Europe are lower across the board with underperformance in the tech sector amid heavy earnings-induced losses in Infineon (-11.8%) which sits firmly at the foot of the Stoxx 600 after the Co.’s below-forecast margin outlook prompted concerns about profitability going forward; STMicroelectronics (-4.8%), BE Semiconductor (-2.8%) and ASML (-2.1%) are lower in sympathy. Autos are also another weak spot for the region with BMW (-2%) an underperformer within the sector as better-than-expected earnings were accompanied by warnings over supply chains and inflation. Telecom names have been dragged lower by poorly-received earnings from Swisscom (-2.9%). Airline names are also on the backfoot following Q2 results from Deutsche Lufthansa (-6.3%) with some attributing downside to a sizable miss on FCF. Elsewhere, in what has been an exceptionally busy morning of corporate earnings, notable highlights include Zalando (+6.1%), Beiersdorf (+3.8%), Adecco (+3.8%), AB Inbev (+3.3%), Merck AG (+2.9%), SocGen (+1.6%), ING (+0.4%), Bper Banca (-7.2%), Telecom Italia (-2.7%), LSE Group (-1.9%), Smith & Nephew (-1.5%), Rolls Royce (-0.9%), Axa (-0.5%), Adidas (-0.4%).

03 Aug 2023 - 09:25- EquitiesData- Source: Newsquawk