EUROPEAN EQUITY UPDATE: Stocks jump in holiday-thinned trade

Analysis details (09:29)

• European equities (Eurostoxx 50 +0.8%) have kicked the week off on the front-foot in holiday-thinned conditions (UK markets are closed) as the region follows suit to Friday’s afternoon gains on Wall Street and overnight in the APAC region. From a macro perspective, weekend highlights saw a slew of updates from the Jackson Hole Symposium whereby ECB President Lagarde stated the Bank needs to set rates at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2% medium-term target. Elsewhere, Austria’s Holzmann said he suspects that the ECB will need to raise rates somewhat higher and Latvia’s Kazaks stated he is in no rush to say they are done on rates, adding that core inflation is still elevated. These comments suggest that Thursday’s Eurozone inflation metrics will be pivotal for the September meeting with markets assigning a near-enough 50/50 chance of unchanged vs. a hike. Elsewhere on the central banking front, BoE’s Broadbent remarked that policy may well have to stay in restrictive territory for some time yet and it is unlikely that inflation second-round effects will unwind as rapidly as they emerged. Pricing for the BoE’s September meeting is much more conclusive than that of the ECB, with a hike priced at around 93%.


• Asia-Pac stocks kicked off the week in the green, following a similar lead from Wall Street, which itself saw a choppy session but ultimately saw a positive close after Fed Chair Powell’s Jackson Hole comments. ASX 200 (0.7%) was supported by the energy and gold sectors whilst the broader mining sector was subdued by Fortescue Metals Group, which missed on net expectations and reported an impairment charge. Nikkei 225 (+1.8%) was also supported by its Energy Sector, with the index just under the 32,000 mark throughout most of the session. Hang Seng (+0.9%) and Shanghai Comp. (+1.1%) were boosted at the open with the Mainland posting gains north of 3% as markets reacted to Friday’s measures to boost investor confidence. In Hong Kong, China Evergrande slumped 80% after resuming trade following a year-and-a-half hiatus. US equity futures resumed electronic trade with modest gains across the board, which were later trimmed with the contracts ultimately trading flat.


• US equity futures (ES +0.2%, NQ +0.2%, RTY +0.3%) are trading marginally firmer continuing strength seen in APAC overnight and following on from a neutral Powell speech at the Jackson Hole Symposium. Following the Chairman's initial remarks, Fed’s Goolsbee (2023 Voter, Dove) said he still feels there is a path to a soft landing and the Fed debate is moving towards how long to keep rates up, rather than the overall level. Both Powell and Fed’s Mester (2024 Voter, Hawk) pointed towards the tight labour market as a cause for concern, which brings all eyes on to the JOLTs, ADPs, IJCs throughout the week, which will be rounded off by the big NFP report on Friday. Other important data will include the Fed’s preferred measure of inflation, a PCE print on Wednesday, along with GDP Estimates and finally ISM Manufacturing data to end a busy week. The docket for today is fairly quiet, with a focus on Dallas Fed Manufacturing Business Index, speak from Fed’s Barr (Voter, Neutral) and a couple of Treasury auctions.


• Equity sectors in Europe are firmer with the exception of the Real Estate industry with Vonovia (-1.7%) lagging on account of news that Germany’s ruling Social Democratic Party will vote on a proposal to lower limits on rent increases in a bid to tackle inflation. The Tech sector is leading the charge higher for Europe with the likes of BE Semiconductor (+2.5%), ASM International (+2.3%), ams-Osram (+2.2%), ASML Holding (+1.8%), Infineon (+1.2%) and STMicroelectronics (+1.2%) supported by reports in the SCMP that Chinese imports of lithography machines in 2023 have surged, already surpassing ASML’s prior forecast for 2023 sales to China. Elsewhere, Valneva (+2.4%) shares are higher after reporting positive initial Phase 3 safety data in adolescents for its single-shot chikungunya vaccine candidate. Finally, ThyssenKrupp Nucera (+2.4%) shares have been lifted following Q3 results, which has supported Thyssenkrupp (+1.3%) alongside suggestions that the CEO of the Co's naval vessel maker Marine Systems has nudged Germany's government to take a stake in the Co.

28 Aug 2023 - 09:29- Research Sheet- Source: Newswires