EUROPEAN EQUITY UPDATE: Stocks in Europe edge higher in the run-up to flash EZ CPI and GDP

Analysis details (09:29)

• Stocks in Europe are firmer ahead of EZ  flash and CPI and GDP following a mixed APAC handover and a solid US lead on Monday. To recap, US stocks were underpinned and oil prices slumped amid an unwinding of the geopolitical risk premium following the lack of a major escalation in the Israel-Hamas conflict. APAC stocks overnight traded mixed amid a deluge of data releases at month-end including disappointing Chinese official PMIs, while participants also digested a slew of earnings releases and the conclusion of the BoJ’s live meeting. Nikkei 225 ultimately closed higher following the BoJ policy announcement in which the central bank announced a less aggressive than anticipated tweak to YCC. Hang Seng and Shanghai Comp were pressured following disappointing PMI data which showed China’s factory activity returned into contractionary territory for October, while there were also plenty of earnings releases including from the likes of Bank of China, BYD and PetroChina.


• European bourses opened mixed but thereafter drifted mostly into positive territory (Euro Stoxx 50 +0.7%; Stoxx 600 +0.4%) despite a lack of headlines ahead of key EZ GDP and CPI data. Gains vary between the bourses with the Swiss SMI (-0.1%) the relative underperformer as Pharma giant and index heavyweight Roche (-2.8%) slips after its DMD trial did not reach its primary endpoint – Roche accounts for ~16% of the Swiss index (the third largest). The UK’s FTSE 100 (+0.4%) sees its gains capped by the energy sector amid the slump in oil prices yesterday and as BP (-5.1%) plumbs the depths post-earnings as profits underwhelmed. Dutch index AEX (+0.8%) is among the outperformers as chip names rebound from yesterday’s slump which was seemingly triggered by ON Semiconductor’s weak guidance.


• Sectors in Europe are mostly in the green with no overarching theme or bias. Energy is the laggard amid the slide in underlying prices coupled with poorly received BP earnings. Healthcare also resides towards the bottom following Roche’s disappointing drug update. On the flip side, the Chemicals sector sits as a top performer as BASF (+3.8%) soars despite overall weak earnings as the firm said it is stepping up its cost-cutting efforts while it added it is to take advantage of lower investment costs including in China. Other earnings-related movers include Stellantis (+1.9%), AB InBev (+3.0%), Bouygues (+5.3%), Thales (-3.2%), OMV (-2.9%).


• US equity futures are now mostly but modestly firmer (ES +0.1%, NQ -0.1%, YM +0.3%, RTY +0.2%) as the contracts coat-tailed on gains seen in Europe shortly after the cash open, with the NQ the relative laggard amid a slight intraday uptick in yields, while China-geared/Chinese stocks listed in the US one point of focus after the disappointing PMI data (Alibaba -1.2%, Bidu -1.3%, JD.com -1.3%). In terms of analyst commentary, JPM’s Kolanovic, in a note dated Monday, said he believes Wall Street will need to downgrade its double-digit earnings growth expectations in the coming quarters “as the full impact of monetary-policy tightening catches up with corporate America.” Kolanovic said the expectations are “divorces from” risks of abating consumer demand and firms’ pricing power, in a restrictive environment, alongside tightening liquidity and elevated geopolitics. “Absent preemptive rate cuts by global central banks, we see risks compounding with the peak effect of restrictive monetary policy still ahead,” the analyst said.

31 Oct 2023 - 09:31- Research Sheet- Source: Newsquawk