EUROPEAN EQUITY UPDATE: Stocks gain amid positive risk tone

Analysis details (09:34)

• European equities (Eurostoxx50 +0.3%) are trading modestly firmer on the back of a positive handover from APAC trade overnight – though the DAX (+0.1%) marginally lags; hampered by losses in Merck (details below). The European session has been fairly quiet, other than dire German Factory Orders data and a slew of Construction PMIs. The EZ-wide figure printed a marginal uptick from the prior, whilst Germany continued to underwhelm. The docket for the European session remains plain, though markets will await BoE’s Financial Stability Report.


• In Barclay’s European Equity Strategy, analysts have noted that the recent strength in equities over the past month is due to increased optimism of a soft landing. However, as some other banks have mentioned, Barclays believes equities may face some resistance in the near term – though caveats by saying that “the path to resistance remains to the upside”.


• European sectors are mixed with a slight positive tilt; Travel & Leisure and Basic Resources are the outperformers, with the former propped up by Tui (+7.9%) after the Co. beat on its results and expects its net leverage ratio to remain “well below” 1.0x. Basic Resources is firmly in the green, attributed to higher base metals prices and to Rio Tinto (+1.9%), which provided positive commentary on Chinese iron ore demand, with the Co. adding that there is space in the market for another iron ore mine; peers such as Glencore (+2.2%) and Anglo American (2.7%) are also firmly in the green. Food Beverage and Tobacco is found at the foot of the sector list, hampered by British American Tobacco (-7.9%), after the Co. said it expects low single-digit revenue and profit growth in 2024, an update that has also impacted peers such as Imperial Brands (-2.9%). Diageo (-0.8%), is also slightly weighing on the sector after it is downgraded to Sell from Neutral at UBS. In terms of individual movers, the worst performing stock Merck (-14.4%) slumps after the Co. said that its Phase III trial results for evobrutinib in relapsing multiple sclerosis did not meet the primary endpoint of reducing annualized relapse rates. Weir (+4.9%) finds itself in the green, after it announced that it was on track to deliver a new operating margin target of 20% by 2026 and upgrades its absolute savings target to GBP 60mln (prev. 30mln).


• Asia-Pac stocks were mostly higher with risk sentiment underpinned by a softer yield environment as market focus remains on this week's data releases and with the recent drop in US JOLTS job openings stoking hopes for Fed rate cuts. ASX 200 (+1.7%) was lifted with the outperformance in real estate front running the broad gains across sectors amid lower yields and with participants unfazed by mixed GDP data. Nikkei 225 (+2.0%) outperformed and climbed back above the 33,000 level with advances facilitated as the 10yr JGB yield declined to its lowest since August. Hang Seng (+1.0%) and Shanghai Comp. (-0.1%) were somewhat varied as the Hong Kong benchmark conformed to the overall upbeat mood, while the mainland lagged after the PBoC continued to drain liquidity and Moody’s revised China’s credit outlook to negative.


• US equity futures (ES +0.2%, NQ +0.3%, RTY +0.2%) are also trading on firmer footing, posting gains similar to their European counterparts. The docket for today includes US MBAs, trade data and ADP National Employment, with the latter expected to tick up to 130k (prev. 113k). Additionally, traders will keep out for Canadian Ivery PMI, Trade Balance and a policy announcement from the BoC. In terms of stock specifics, Nvidia (NVDA, +1.1%) is gaining in the pre-market following commentary from the CEO who said there are plans to continue working with the US government and come up with a new set of products to comply with new chip regulations. And over to Mastercard (MA, +0.5%) is slightly firmer after the Co. announced a USD 11bln share buyback programme and raised quarterly dividend 16% to USD 0.66/shr (prev. 0.57/shr).

06 Dec 2023 - 09:38- EquitiesData- Source: Newsquawk