EUROPEAN EQUITY UPDATE: Stocks inch higher ahead of FOMC

Analysis details (09:33)

• European equities (Eurostoxx 50 +0.4%) trade marginally firmer as regional bourses have reversed the modest losses seen at the cash open. Once again, fresh macro impulses for Europe have been lacking with the broader macro narrative dominated by yesterday’s US inflation data ahead of today’s FOMC policy announcement, as well as stimulus efforts in China ahead of domestic activity indicators due to be released overnight. The main data highlight for today’s session has come via UK GDP data which saw April M/M print in-line with expectations at 0.2% with the release accompanied by disappointing output metrics and a shallower-than-expected trade deficit.


• Asia-Pac stocks traded somewhat mixed with the region mostly tentative ahead of the FOMC policy announcement. ASX 200 (+0.3%) was led by strength in the commodity-related sectors following Chinese support pledges/actions. Nikkei 225 (+1.5%) extended its advances as automakers and other exporters benefitted from recent currency moves. Hang Seng (Flat) and Shanghai Comp. (+0.2%) were kept afloat after the PBoC cut rates for its Standing Lending Facility with reports also noting that China was said to be weighing broad stimulus via property support and rate cuts.


• Analysts at Citi are of the view that “analysts’ profit growth forecasts for 2023 in the US and Europe appear realistic”. However, 2024 forecasts look optimistic given the macro outlook whereby “2024 US profit growth forecasts are double digit, showing top-line growth and margin expansion as the main drivers of profit growth across nearly all sectors”. Elsewhere, Barclays notes that additional stimulus from China could provide a lift to European equities and cyclicals. Adding, that “although structural headwinds cap the growth upside, we see an improved tactical risk-reward for the unloved China equity market, and exposed names in Europe”.


• US equity futures (ES +0.2%, NQ +0.2%, RTY +0.3%) trade with modest gains as the ES gains a firmer footing above the 4400 mark on FOMC day. The FOMC is expected to leave rates unchanged at 5.00-5.25% with yesterday’s inflation data not warranting an adjustment to the consensus. The accompanying 'Dot Plot' will go a long way in dressing the unchanged decision as a 'pause' or a 'skip', where the absence of an increase to the 2023 median rate dot will struggle to see the 'skip' nomenclature hold ground, reflecting diminishing power amongst the hawks. Doves will be hesitant to back guidance around further hikes over fears of a future event in the banking sector, a view that appears more in line with the Fed hierarchy than not.


• Equity sectors in Europe have a positive tilt with Real Estate names top of the pile following a bruising session yesterday as UK borrowing costs soared post-jobs and earnings data. Other gaining sectors include Autos and Banks, whilst Travel & Leisure is the standout laggard to the downside amid losses in Entain (-10%) whereby the Co. is to place GBP 600mln of ordinary shares to fund its purchase of STS Holdings for GBP 750mln. Elsewhere, other notable updates have seen Shell (+0.2%) announce a 15% dividend/shr increase from Q2 2023, capital spending is to be reduced to USD 22-25bln/year for 2024 & 2025 and anticipates buybacks of at least USD 5.5bln for H2 2023. Recruitment names are on the backfoot following a profit warning from Robert Walters (-14.9%) which has weighed on the likes of Hays (-6.3%) and Adecco (-3.5%). Finally, Casino (+18%) shares are soaring following news that a EUR 1.1bln approach for the company has been made by three French businessmen.

14 Jun 2023 - 09:33- Fixed IncomeData- Source: Newsquawk