EUROPEAN EQUITY UPDATE: Stocks kick the week off on the front foot. US CPI looms large

Analysis details (09:35)

European equities have kicked the week off on the front-foot in an extension of last week’s gains (Eurostoxx 50 +0.3%) following the positive handover from the APAC region. The main focus overnight was on China’s reopening efforts which has added to the hopes of an economic recovery and comes ahead of the Lunar New Year holiday later this month. Stateside, US futures are on a slightly firmer footing (ES +0.3%, NQ +0.4, RTY +0.2%) amid the broad-based upside across risk assets with the ES extending its ascent on the 3900 handle. From a macro perspective, highlights this week include today’s NY Fed Expectations survey, Powell’s panel appearance at the Riksbank on Tuesday, US CPI Thursday and Uni. of Michigan on Friday. It will be a quiet start to the earnings season, and although almost 150 US companies will report in the week of January 9th, only a handful are in the S&P 500. However, six of these companies are large financials (BAC, BK, BLK, C, JPM, WFC), while healthcare giant UNH will also report -- all on Friday. For the earnings season more widely, analysts expect S&P 500 companies will report a decline in earnings of 1.6% in Q4, according to Refinitiv, and 'earnings recession' will be a theme that the analyst community focuses on. When it comes to European equities, JP Morgan notes that a lot has repriced, and the market focus could turn to earnings, which are likely to be weaker, and that could contribute to market consolidation ahead. JPM adds “the peak in inflation, which we believe is very helpful to stabilize P/E multiples, will in turn end up as a negative for corporate profits, especially as earnings benefitted from strong pricing and mix post COVID-19”. Accordingly, JPM recommends “taking some profits, to tactically reduce equity exposure”. Elsewhere, analysts at Bernstein are of the view that, assuming a shallow recession, stocks can deliver positive returns despite near-term earnings headwinds. Bernstein is overweight European stocks vs. US with the former to be supported by greater scope for multiple expansion and current depressed sentiment in Europe. Sectors in Europe are mostly firmer with Basic Resources, Construction and Financial Services outperforming peers whilst Food & Beverage, Utilities and Health Care lag. In M&A, AstraZeneca (-0.9%) announced it will acquire Cincor for an upfront cash consideration of USD 1.3bln, whilst Vodafone (-0.9%) is set to offload Vodafone Hungary for EUR 1.7bln. Finally, PostNL (+3.6%) is a notable gainer after reaching an agreement with unions for a 9.5% wage increase.

09 Jan 2023 - 09:35- Research Sheet- Source: Newsquawk