EUROPEAN EQUITY UPDATE: Stocks firm ahead of EZ-CPI print

Analysis details (09:20)

• European equities (Eurostoxx 50 +0.3%) trade in marginal positive territory after remarks from ECB’s Schnabel elicited a dovish reaction across the market. To recap events, on the data slate, today has seen the release of French CPI metrics which were particularly hot with Y/Y coming in at 4.8% from 4.3% (vs. Exp. 4.6%) and M/M at 1.0% from 0.1% (vs. Exp. 0.8%). This bolstered the case for a 25bps hike by the ECB in September to around 60% before comments from ECB’s Schnabel who refrained from making a concrete case for further policy tightening next month (vs. expectations by some that she could have made the case for additional action) and instead adopted a similar tone to some of her more dovish colleagues when it came to the growth outlook. Subsequently, the odds of a September hike are now at around 40%. All eyes are now on the EZ-wide inflation metrics at 10:00BST whereby the consensus is for headline Y/Y flash CPI in August to fall to 5.1% from 5.3%, with the super-core metric seen moving lower to 5.3% from 5.5%. That said, given national readings thus far, it is likely that the unofficial market expectation is somewhat above the somewhat stale analyst consensus. Elsewhere, on the central bank front, BoE Chief Economist Pill adopted a hawkish stance talking up the presence of second-round effects in the UK and that inflation in the UK is “too high”. Albeit these comments were balanced by his view that there is the possibility of doing too much when it comes to the fight against inflation.


• APAC stocks traded mixed following a marginally positive handover from Wall Street, which saw the equity bid continue to be underpinned by dovish US economic data. ASX 200 (+0.1%) was flat on either side of 7,300 as the gains in the Telecoms and Financial sectors were marginally offset by losses in Energy and Consumer Staples. Nikkei 225 (+0.7%) also saw gains although the machinery sectors are in losses following the dire Japanese industrial output data, with a Japanese government official highlighting a decline in demand both domestically and abroad, with output falling in several areas including production machinery. Hang Seng (-0.5%) and Shanghai Comp (-0.5%) varied at the open, with the Hang Seng supported by its property sector which rose more than 2.5% at the open, whilst the Mainland was a bit more cautious following mixed PMI data. Later in the session, both indices extended losses as sentiment continued to dip.


• US equity futures (ES +0.1%, NQ +0.1%, RTY +0.3%) are trading slightly firmer, continuing the strength seen in the prior session. The docket yesterday gave the markets some more excitement amid the usual summer holiday-thin trade, with pronounced bullish moves following upside movements in bonds and a dovish repricing in Fed rate cuts, amid important data releases. The GDP 2nd Estimate came in lower at 2.1% (exp. & prev. 2.4%), whilst PCE Prices Prelim also ticked slightly lower to 3.7% (prev. 3.8%), both of which further add to the Goldilocks narrative, which has been sidelined in recent weeks. Additionally, the ADP figure fell to 177k (exp. 195k), with the accompanying report highlighting that wage growth eased to 9.5% (prev. 10.2%). However it is important to note that the ADP figures have had little correlation to the big NFP report tomorrow. Earlier in today’s session, Fed’s Bostic (Dove) gave his remarks on current monetary policy, saying that it is appropriately restrictive and enough to bring inflation down to 2% over a reasonable time frame, adding that he is not for easing policy any time soon. Overall, these comments very much stress the data-dependency and balanced approach the Fed is currently taking. The day ahead continues to remain busy, with US Challenger Layoffs, Initial Jobless Claims, and the Fed’s preferred measure of inflation a PCE print, which Fed Chair Powell suggested that the data would more-or-less be in line with the market consensus. Away from data, markets will await speak from Fed’s Collins and earnings from Broadcom.


• Equity sectors in Europe are mostly firmer with Real Estate and Financial Services names top of the leaderboard. The latter has been bolstered by post-earnings upside in UBS (+4.9%) after the Co. reported the largest ever quarterly profit for a bank following its acquisition of Credit Suisse; note, the USD 29bln increase was driven by the difference between the value the Co. paid for Credit Suisse and the value CS holds on its balance sheet. Furthermore, UBS Global Wealth Management recorded its highest second-quarter net new money in over a decade at USD 16bn, momentum continuing into 3Q23. On a less positive footing, Pernod Ricard (-3.5%) is acting as a drag on the Food, Beverage and Tobacco sector after FY results; Remy Cointreau and Diageo are down 2.3% and 1.3% respectively in sympathy. Glencore (-4.8%) shares are on the backfoot following reporting by the FT that dozens of the world’s largest asset managers have accused the Co’s trading house of misleading in previous prospectuses to mask corrupt activity. Finally, for the FTSE Reshuffle - Dechra Pharma, Diploma, Hikma Pharma and Marks & Spencer are to join the FTSE 100. Abrdn, Hiscox, Johnson Matthey and Persimmon are to depart.

31 Aug 2023 - 09:20- Research Sheet- Source: Newsquawk