EUROPEAN EQUITY UPDATE: Stocks follow suit to Wall Street gains

Analysis details (09:30)

• European equities (Eurostoxx 50 +0.6%) trade on the front-foot (with the exception of the IBEX 35; -0.4%) as stocks follow suit to yesterday’s gains on Wall Street. Incremental macro drivers for the region remain light and therefore impetus needs to be garnered from elsewhere. Today sees the release of German ZEW data at 10:00BST which will present “an opportunity to get a (very) early read on June sentiment indicators”, according to ING. ING adds that “consensus is for a decline as, we think, actually economic data and China’s reopening, are not living up to expectations”.


• APAC stocks eventually traded mostly higher following the gains on Wall St where the S&P 500 and Nasdaq 100 rose to their best levels in a year. ASX 200 just about kept afloat but with upside capped after mixed data in which Westpac Consumer Confidence improved but remained near recession lows and NAB Business Confidence deteriorated. Nikkei 225 resumed its outperformance and breached the 33,000 level for the first time in over three decades amid strength in automakers and with SoftBank spearheading the advances on news that Intel is to discuss being an anchor investor in the Arm IPO. Hang Seng and Shanghai Comp. were both initially subdued despite the PBoC’s cut to its short-term interbank funding rate which raises the prospects of a cut to the MLF rate and benchmark LPR. Sentiment in the region was dampened by ongoing growth concerns and lingering frictions after the US added 43 entities to its export control list.


• US equity futures (ES +0.2%, NQ +0.6%, RTY +0.3%) have extended on yesterday’s gains with continued outperformance in the Nasdaq. The focus for today’s session will largely centre around today’s CPI data in the run-up to tomorrow’s FOMC policy announcement. Wall Street consensus sees Core CPI Y/Y falling to 5.3% from 5.5%, with the M/M seen flat at +0.4%. Some economists have made their unchanged June Fed rate meeting forecasts contingent on the inflation data coming in-line as expected, so any upside surprises Tuesday (particularly in the Fed-favoured core services ex-housing derivation) will no doubt push up the probability of a hike on Wednesday, if not reinforce hawkish guidance at the very least with the report adding to the solid non-farm payrolls additions in May. On the other hand, doves may instead point to the lagging nature of CPI data and instead point to the softening of indicators such as ISMs and PMIs, the recent pick-up in initial jobless claims, and the spike in the unemployment rate (and falling hours worked) as all warranting a pause in aggregation.


• Analysts at Citi note that “bullish sentiment across US equities continues to widen”, adding that the prior week saw a significant increase in risk flows into the S&P 500, prompting a further extension in positioning for S&P 500 and Nasdaq futures. Citi concedes however, that profit taking risks are skewed towards Nasdaq futures. In Europe, Citi states that positioning has been more subdued with notional levels little changed on the week. Elsewhere, JP Morgan’s Kolanovic is of the view that the recent increases in cyclical stocks are likely to prove fleeting as the lagged impact of existing rate hikes and potential further tightening poses a threat to the rally in US stocks. The latest BofA global fund manager survey showed that allocations to equities are at a net 32% underweight; 5-month low. The most crowded trades are: long big tech, long Japanese stocks and short Chinese equities.


• Equity sectors in Europe are mixed with Basic Resource names top of the pile amid strength in underlying metals prices with sentiment bolstered overnight by the PBoC as well as reporting from Bloomberg that China is said to be weighing broad stimulus efforts via property sector support measures and rate cuts. Glencore (+3.5%) is a notable gainer within the group following news that Nippon Steel said it is still in talks with Teck Resources and remains interested in investing in the Co's coal business (this comes after Glencore made a new cash proposal for Teck's coal business). News surrounding China has also proved supportive for luxury names with upside seen in the likes of Kering (+1.2%), LVMH (+1.4%), Hermes (+1.3%) and Richemont (+1%). Elsewhere, tech names are on a firmer footing alongside similar performance stateside and with SAP (+1%) supported by earnings from US peer Oracle. To the downside, Real Estate names lag with UK homebuilders hampered by the surge in UK borrowing costs following today’s hot labour market report.

13 Jun 2023 - 09:30- EquitiesData- Source: Newsquawk