EUROPEAN EQUITY UPDATE: Stocks fade earlier upside but heavyweight ASML holds gains post-earnings

Analysis details (09:55)

Equities in Europe trade mostly lower after initially opening modestly firmer across the board, with sentiment somewhat fragile across the complex and failing to hold up despite the boost induced from Netflix (+12.3% pre-market) post-earnings. Fresh fundamental drivers for global markets have been light thus far this morning - although bond yields are back on the rise, with UK consumer inflation metrics printing above forecast. US equity futures are giving up earlier gains with the RTY (-0.4%) lagging peers and the NQ (+0.1%) slightly more cushioned amid the aforementioned Netflix earnings which saw shares surge after-market as net subscribers printed at over double the forecast, although, on the flip side, Apple (-0.9% pre-market) reportedly cut its iPhone 14 Plus production with the procurement team re-evaluating demand for the product, according to The Information. In terms of broader market commentary, analysts at Citi’s quant desk believe that US equities are pricing in higher odds of a recession more than other asset classes and could be primed for more losses – “US equities have priced the most (but not enough) recession risk, and earnings estimates have further to adjust,” the desk said. Back in Europe, bourses are mostly lower (Euro Stoxx 50 +0.1%; Stoxx 600 -0.4%), with European heavyweight ASML (+5.7%) cushioning downside for the region post-earnings as it holds an 8.1% weighting Euro Stoxx 50 (the largest), a 2.3% weighting in Stoxx 600, and a 15.6% weighting in the AEX (+0.2%). ASML beat on revenue expectations whilst it guided Q4 sales above market expectations, although Q4 gross margin guidance is softer than forecasts, the chipmaker highlighted strong overall demand and sees a limited impact in 2023 shipments from the new US rules on chips. As such, the European Tech sector resides as the current outperformer, although other chipmakers such as STMicroelectronics (-2.0%) and Infineon (-1.4%) fail to garner support, potentially on the aforementioned Apple news. Sectors overall are now mostly lower (vs a mixed open) with no overarching theme, with Tech, Media, and Insurance towards the top of the bunch whilst Real Estate, Retail, and Basic Resources sit as the laggards. In terms of other individual movers, behemoth Nestle (+0.1%) sees choppy trade after sales topped forecasts whilst earnings were accompanied by reports that Nestle is to buy Seattle's best coffee brand from Starbucks (+0.4% pre-market) - Nestle holds a 3.5% weighting in the Stoxx 600 (the largest), and around a 19.4% weighting in the SMI. Other earnings-related movers include the likes of Asos (+11.1%), Handelsbanken (+4.8%), Just Eat Takeaway (+0.3%) and Sartorius (-14%). Meanwhile, mining names are under pressure with underlying base metals weighted on by the firmer Dollar and dwindling risk appetite, whilst Antofagasta (-2.3%) said its 2022 copper production guidance is unchanged at the lower end of its 640-660k tonne range, BHP (-0.1%) saw Y/Y upticks in production and maintained guidance, and Glencore (-2.6%) reportedly delivered Russian origin aluminium into the LME system, according to Reuters sources. Elsewhere, MUFG is reportedly looking into the acquisition of some loan portfolios from Credit Suisse (+0.5%), as part of plans to expand its US business, via Bloomberg citing sources, whilst CIBC and TD are said to be likely bidders for the Swiss bank’s investment arm.

19 Oct 2022 - 10:00- Research Sheet- Source: Newsquawk