EUROPEAN EQUITY UPDATE: Stocks indecisive in summer trade

Analysis details (09:24)

• European equities (Eurostoxx 50 unch.) have kicked the week off in an undecided fashion with macro updates on the light side as markets feel like they have entered into a summer lull. As such, today’s session may be more one of a case of looking ahead to key risk events with the main highlight being Thursday’s CPI print (a preview of which can be found in our weekly note here).


• Asia-Pac stocks began the week mostly negative following on from last Friday's late retreat on Wall St as Apple shares extended on their losses post-earnings and as the regional bourses reacted to the weaker NFP and firmer-than-expected US hourly earnings. ASX 200 (-0.2%) was marginally lower amid weakness in healthcare, financials and tech heading into a busy week of earnings including Australia's largest lender CBA which is set to report on Wednesday. Nikkei 225 (+0.2%) initially suffered from early selling pressure after it gapped beneath the 32,000 level at the open but then staged a recovery and returned back above the aforementioned key psychological level. Hang Seng (-0.2%) and Shanghai Comp. (-0.6%) conformed to the subdued mood with mixed fortunes in Chinese developers clouding over the gains in energy and with participants cautious heading into upcoming key releases including the trade data on Tuesday followed by inflation figures on Wednesday.


• US equity futures (ES +0.5%, NQ +0.6%, RTY +0.5%) are trading higher, with the NDX leading the upside after four days of losses (capped off by a disappointing earnings report from Apple) and following the mixed NFP release. Though it is important to note that there will still be another two CPI prints, along with a further NFP release that will precede the next FOMC meeting, making this most recent report less pertinent. Today's highlights include employment trends for July, consumer credit for June, and Manheim's auto index. Fed's Bostic (2024) will deliver remarks again, as will Fed Governor Bowman (voter) who on the weekend said that more rate hikes will likely be needed and that the Fed should remain willing to raise rates at a future meeting if data indicates progress on inflation has stalled. Additionally, traders will keep an eye out for various earnings, with notable releases from Airbnb, Viatris and Tyson Foods.


• Goldman Sachs notes that of the companies it tracks in Europe, 65% have reported thus far and have presented a Q2 2023 earnings surprise of 1% to the upside and (ex-financials) have been in-line with estimates. GS adds that it is seeing a low share of positive beats with only 30% of companies beating estimates by more than 2% with the desk also making a similar conclusion to others in noting that the “market reaction for companies that do beat also remains soft”. From a sectoral standpoint, GS notes that consumer-related companies have seen a mixed picture, positive momentum has continued for banks, whilst Chinese-exposed names have reported soft numbers.


• JP Morgan notes that after showing resilience through H1, the market narrative for that has been in since June (that the weak parts of the economy are set to improve, and that the good parts will stay resilient) could be challenged by softening activity data flow into mid-year. JPM adds that this will likely put in doubt the consensus hopes that European earnings are bottoming out. The desk is of the view that there is another leg of underperformance ahead for the Eurozone (current underperformance vs. the US is 12% in the last 3 months) and reiterates its downgrade to underweight in May. From a sector standpoint, JPM thinks that overweight growth vs. value will continue working to year-end but given the strong run seen in Tech, pure defensives are best positioned for H2.


• Equity sectors in Europe are mixed and relatively narrow when it comes to breadth with Basic Resources the marginal laggard to the downside. In terms of stock specific updates, gainers include Scout24 (+8.7%), which sits at the top of the Stoxx 600 after raising EBITDA guidance, K+S (+3.5%) has benefited from a favourable broker move at Berenberg and Siemens Energy (+2.8%) has managed to reverse opening losses which were triggered by a USD 2.4bln charge for its wind turbine unit; a figure which was not as large as some of the more pessimistic forecasts in the marketplace. To the downside, Aurubis (-7.7%) is the worst performing stock in the Stoxx 600 after 9M results disappointed, whilst Teleperformance (-1.7%) and Deutsche Boerse (-1.6%) have suffered from broker downgrades at Goldman Sachs and UBS respectively. One to keep an eye on comes from the UK banking sector whereby Santander UK and Lloyds are facing a GBP 1bln UK lawsuit over practices that pushed customers towards more expensive finance options.

07 Aug 2023 - 09:24- EquitiesData- Source: Newsquawk