EUROPEAN EQUITY UPDATE: Stocks firmer as FOMC looms large

Analysis details (09:35)

• European equities (Eurostoxx 50 +0.6%) trade on the front-foot in an attempt to claw back some of yesterday’s losses which were prompted by a confluence of factors including the unexpected RBA rate hike, US banking sector woes and soft US JOLTS data. Macro updates for Europe itself have been on the light side with focus for the region on tomorrow’s ECB policy announcement.


• In terms of the overnight handover, most Asia-Pacific stocks were negative due to the losses on Wall Street with the Hang Seng the laggard amid weakness in energy and tech sectors, whilst traders expect a rate hike from the Fed and a similar move by the HKMA.


• US equity futures (ES +0.1%, NQ +0.1%, RTY +0.2%) are trading in positive territory after yesterday’s session of losses. Today, it is all about the Federal Reserve’s policy announcement, where a 25bps rate rise is the base case. However, traders will be focussed on whether the central bank signals that hikes have now concluded; a pause would be in keeping with its March projections. Powell will also be quizzed on market pricing for rate cuts (rate markets currently assume the Federal Funds Rate target will close out this year at between 4.25-4.50%) as well as his view on recent banking sector jitters. Before the Fed, the ADP’s gauge of payroll growth in the US will be eyed, and analysts are generally expecting a sequential cooling in the rate of jobs growth going forward, as reflected in other labour market metrics, like JOLTs data released on Tuesday.


• As part of their European equity strategy, analysts at Barclays note that stocks are “late-cycle limbo”, torn between peak rates hope and recession fear, adding that the “path of least resistance may be higher if the Fed leans towards a pause, yet the growth outlook does not get better”. Additionally, the desk notes “having cut beta last two months, a more defensive, but also diversified, portfolio makes sense, as perceived safety is pricey”.


• Equity sectors in Europe have a positive tilt with Consumer Products & Services and Food, Beverage and Tobacco names top of the leaderboard, whilst Energy names are enduring another session of losses after yesterday’s marked underperformance. In terms of individual updates, UniCredit (+5.8%) is top of the Stoxx 600 and lifting the FTSE MIB (+1.1%) after Q1 results exceeded expectations and prompted the Co. to raise guidance. Elsewhere in the banking sector, Lloyds (-0.9%) earnings were less well-received after a beat on Q1 earnings was accompanied by a cautious outlook, whilst BNP Paribas shares are flat post-results. Deutsche Lufthansa (-4.5%) is on the backfoot after Q1 results failed to meet analyst expectations. Other notable post-earnings laggards include Signify (-9%), Haleon (-3.8%) and Stellantis (-2.2%).

03 May 2023 - 09:35- Fixed IncomeResearch Sheet- Source: Newsquawk