EUROPEAN EQUITY UPDATE: Stocks firmer and UK homebuilders saw as CPI prompts dovish BoE repricing

Analysis details (09:35)

• European equities (Eurostoxx 50 +0.2%) are higher across the board, albeit off best levels amid a pullback in recent trade. The global macro mood has been supported by softer-than-expected inflation data out of the UK, which has tilted market expectations of the BoE’s rate course in a dovish direction whereby a 25bps hike in August is now seen as more likely than a 50bps adjustment. Note, this also comes in the context of yesterday’s dovishly-perceived comments from ECB’s Knot who refrained from committing to a September move by the Bank.


• Asia-Pac stocks were mixed as the ongoing China economic woes partially offset the constructive lead from Wall St. ASX 200 (+0.6%) was positive with gains led by the energy sector, mining names were choppy amid indecision in Rio Tinto due to a mixed quarterly update. Nikkei 225 (+1.2%) outperformed after recent comments by BoJ Governor Ueda provided the latest hints regarding the unlikelihood of a policy tweak at next week’s monetary policy meeting. Hang Seng (-0.5%) and Shanghai Comp. (Unch) were subdued as Hong Kong suffered from tech losses and with a non-committal tone in the mainland amid ongoing economic woes and recent support efforts.


• US equity futures are flat with the ES managing to hold above the 4550 mark following yesterday’s advances whereby markets digested strong bank earnings which helped lift the Russell 2000, and outperformance in Tech names, led by Microsoft and NVIDIA on more AI updates. For today’s earnings docket, Goldman Sachs (GS) will report in the premarket; the bar has been raised somewhat given solid reports from its peers, but Goldman has been debasing expectations in the run-up to its release. Elsewhere, ELV, USB, GS, NFLX, TSLA, IBM are also due.


• Credit Suisse has lifted its end-2023 S&P 500 price target to 4,700, underpinned by better economic dynamics and tech earnings growth. CS is also raising its 2023 and 2024 EPS view to USD 220/shr (prev. 215) and USD 237/shr (prev. 220); the 2024 view is based on 4-5% organic earnings growth (on 3-4% nominal GDP), 1-2% additional growth from a rebound in TECH+ profits, and 1.5-2% in buybacks.


• Barclays notes that US disinflation weighing on the USD is bullish for risk assets; mainly US and EM. The desk notes that in order for this to translate into lasting USD softness and a broader risk-on move, the growth outlook needs to improve, possibly as a result of Chinese stimulus. Currently, a stronger EUR amid higher rates alongside softer Chinese growth “penalises” Europe/UK.


• Equity sectors in Europe have a positive bias with clear outperformance in the Real Estate sector with UK Homebuilders/property developers soaring across the board post-UK CPI (British Land +6.0%, Persimmon +5.9%, Barratt Developments +5.2%, Taylor Wimpey +5.1%, etc) which, alongside a softer GBP has helped boost the FTSE 100 (+1.1%) and the more domestically-focused FTSE 250 (+2.4%). To the downside, Basic Resource names lag alongside softness in metals prices and production updates from Rio Tinto (-0.9%) and Antofagasta (-1.9%) whereby the former cut its 2023 refined copper and alumina production guidance. ASML (+0.2%), which is the largest component of the Eurostoxx 50, shares are holding just above neutral post-Q2 results which saw the Co. beat on revenues and net income but highlighted caution amongst its customer base. Kering (+6%) shares have been supported by news that it is to overhaul management at Gucci. Aston Martin (+5.5%) has been boosted by an upgrade to buy at Goldman Sachs. To the downside, Volvo (-2.4%) shares have been weighed on by soft earnings, whilst Wacker Chemie (-1.8%) is on the backfoot after cutting guidance.

19 Jul 2023 - 09:35- Fixed IncomeData- Source: Newsquawk