EUROPEAN EQUITY UPDATE: Stocks hold a mild downside bias after China surged on reopening hopes

Analysis details (09:35)

Equities have been holding a modest downside bias following largely horizontal APAC trade and after Wall Street’s post-NFP recovery on Friday. Overnight, Chinese stocks outperform following reports several Chinese cities accelerated the loosening of COVID-19 restrictions over the weekend including Shanghai and Shenzhen, whilst Reuters sources said China could announce 10 supplementary COVID measures as soon as Wednesday. US equity futures dipped a touch lower around the European cash open despite a lack of fresh fundamentals, although losses are relatively broad-based across the front-month ES (-0.4%), NQ (-0.3%) and YM (-0.4%). Analysts at Citi offer their prognosis of the current equity markets – “We are currently at a spot in the US business cycle, where fears of inflation and the Fed are fading, but fears of a recession are not yet pronounced enough to lead to downside in equity markets. As we enter 2023, we expect US recession fears to become the driver. We therefore treat rallies in US equities as bear market rallies and shift our underweight from Europe, where the business cycle is further advanced, to the US. We also go long China equities on the re-opening theme. In credit we close our European credit underweight, but keep the US one.”. European bourses are mostly lower with the Eurozone majors all modestly softer (Euro Stoxx 50 -0.3%; Stoxx 600 -0.2%) following mixed Final PMI metrics, with the Eurozone release pointing to a modest GDP contraction of 0.2%, though it did flag signs of peaking inflation. Sectors in Europe are mostly negative with no overall bias. Basic Resources are the marked outperformers as underlying metals surge on China’s reopening optimism. Real Estate, Insurance, Banks, and Financial Services also reside in the green. On the other hand, Food & Beverages, Media, and Tech sit as the underperformers. In terms of individual movers, Credit Suisse (+5.4%) is at the top of the Stoxx 600 after the WSJ reported, citing sources, that Saudi Crown Prince bin Salman is set to invest around USD 500mln in the CS First Boston spinoff.

05 Dec 2022 - 09:35- Research Sheet- Source: Newsquawk