EUROPEAN EQUITY UPDATE: Stocks give up gains as Draghi resigns and the clock ticks down to the ECB

Analysis details (10:21)

Cash bourses in Europe kicked off the session mostly with modest gains but have since slipped. Sentiment was initially buoyed by the return of gas flows following the planned maintenance of the Nord Stream 1 pipeline, in turn diminishing fears that Russia will not turn the taps back on – with Germany to provide an update on the situation at 13:00BST/08:00EDT. The mood across markets thereafter deteriorated as Italian PM Draghi tendered his resignation with the clock ticking down to the ECB announcement (13:15BST/ 08:15EDT) and presser (13:45BST/08:45EDT), with the central bank expected to raise its rates for the first time in 11 years, and an anti-fragmentation tool is also expected to be unveiled – A full Newsquawk is available in the Research Suite. US equity futures have succumbed to the weakness across the Atlantic but to a lesser extent, with relatively broad-based losses seen across the ES, NQ, YM and RTY. Back in Europe, bourses are mostly lower (Euro Stoxx 50 -0.5%; Stoxx 600 -0.4%) after a morning full of earnings, but the Italian FTSE MIB (-2.4%) bears the brunt of political instability after PM Draghi resigned. On this note, if an alternative parliamentary majority cannot be formed, President Mattarella would likely have to call for early elections - possibly held in September or October - just as the budget season is kicking off in Autumn. Italian banks have plunged as a result with the largest losses seen across UniCredit (-6.9%) ad Banco BPM (-6.8%) – in turn pressuring the pan-European banking sector. Conversely, the Dutch AEX (+0.5%) outperforms amid metrics from ASM International (+7.8%) alongside ASML (+2.7%) which sees support from a broker move at JPM. Meanwhile, the DAX (-1.0%) experiences pressure from heavyweight SAP (-3.5%) after the giant cut its FY non-IFRS operating profit guidance – SAP holds an 8.3% weighting in the DAX 40. Sectors in Europe are mixed, but the bias is tilted modestly towards the defensive end. Media outperforms after Publicis (+4.0%) reported strong earnings. Energy lags as crude prices slide. Looking at some individual movers, Swiss heavyweight Roche (-0.8%) is softer as it anticipates its sales of COVID-19 medicines and diagnostics to decrease by approximately CHF 2bln. Nokia (+7.6%) soars as it expects sales growth pace to increase in H2. State-side, Tesla (+2.1% pre-market) is firmer post-earnings after EPS beat estimates and the Co. reiterated guidance. In terms of commentary, JPM’s Flow and Liquidity analysis suggests that “after hitting oversold territory, momentum traders have been covering their short position in equities over the past month. These previous equity short positions appear to have been completely covered in European and Japanese equities and there is only a modest overhang of short positions in US and EM equities. This implies that equities look overall more vulnerable than a month ago and in particular European and Japanese equities.”

21 Jul 2022 - 10:21- EquitiesEconomic Commentary- Source: Newsquawk