EUROPEAN EQUITY UPDATE: Stocks hold firm as macro updates remain light and the clock ticks down to US CPI

Analysis details (10:18)

European equities trade with firm broad-based gains (Euro Stoxx 50 +1.7%; Stoxx 600 +1.5%) in what is a continuation of the momentum seen across APAC and Wall Street as catalysts remain light ahead of US inflation tomorrow. In the background, geopolitical headlines have been less sanguine this morning despite ongoing diplomatic efforts – with Russia opposing a US missile defence deal with Ukraine (in a similar vein to China’s recent opposition to a US-Taiwan deal), whilst Iran unveiled a long-range ballistic missile a day after the resumption of nuclear talks. Nonetheless, the mood across stocks remains optimistic for now with US equity futures extending on yesterday’s gains: the yield environment sees the NQ (+0.8%) narrowly outperform the ES (+0.5%), YM (+0.6%) and RTY (+0.5%). JPM analysts in a note yesterday suggested they have identified a “near-bulletproof” indicator that stocks are set to rally – with a buy signal flagged as the VIX rose above its 1-month moving average, according to the strategists. However, it is worth being aware that the signal proved to be false during the 2008 financial crisis, which saw the SPX still down over 30% six months later. Back in Europe, the FTSE 100 (+0.7%) underperforms the region as a pullback in Banks and Basic Resources weigh on the UK benchmark. Euro-bourses meanwhile see more pronounced gains with some impetus derived from ECB’s Villeroy who suggested the market reaction to the ECB meeting may have been too strong. Sectors are mostly positive with no real standout theme aside from influence via earnings, bond yields and commodities. Tech sits at the top of the bunch amid lower yields, closely followed by Industrial Goods & Services which benefit from the softer base metals. Banks lag from the aforementioned yields dynamics coupled with some stock-specifics: ABN AMRO (-3.4%) sits near the bottom of the Stoxx 600 despite decent numbers with analysts citing an underwhelming share buyback programme, whilst Deutsche Bank (-2.0%) is pressured after Cerberus sold shares in the name. Travel & Leisure also sits with the straddlers as sector-heavyweight Evolution Gaming (-6.7%) is hit by its corporate updates. Other earnings-related large-cap movers include GlaxoSmithKline (-0.6%) and Equinor (+3.2%) – with the latter echoing the massive profit updates seen with the likes of BP (+1.7%) and Shell (-0.2%). In terms of commentary on European equities, Barclays highlights the risk to the value cyclical leadership arising from a worsening macro outlook, but rising real rates currently support the strategy.

09 Feb 2022 - 10:17- EquitiesData- Source: Newsquawk