EUROPEAN EQUITY UPDATE: Stocks lack direction as macro developments remain light

Analysis details (09:43)

• European equities (Eurostoxx 50 -0.1%) trade with little in the way of firm direction as markets await the return of US traders to the fray after the long weekend. Once again, fresh macro impulses for Europe are on the light side, aside from softer-than-expected German PPI metrics with the Y/Y rate for May falling to 1.0% from 4.1%. Elsewhere, focus remains on the recent advances in the UK rates space after the 2yr yield breached 5% yesterday and placed further pressure on the domestic mortgage market.


• Asia-Pac stocks were mostly lower with risk appetite subdued in the absence of a lead from Wall St. ASX 200 (+0.9%) was led higher by gains in the commodity-related sectors and following the RBA Minutes with money markets currently leaning towards rates being kept unchanged next month. Nikkei 225 (+0.1%) was negative for most of the session although the losses were stemmed as the index held above the 33,000 level whilst several major Japanese trading houses benefited from further investments by Berkshire Hathaway. Hang Seng (-1.5%) and Shanghai Comp. (-0.5%) declined despite the PBoC’s liquidity boost and 10bp cuts to its benchmark Loan Prime Rates. This was widely expected for the 1-year LPR after similar cuts to short-term funding rates but disappointed those anticipating a deeper 15bps cut for the 5-year LPR.


• US equity futures (ES -0.3%, NQ -0.5%, RTY -0.3%) trade on the backfoot with selling pressure picking up in recent trade as the ES crossed below 4450. Given the long weekend, incremental macro updates for the US are lacking and therefore it is more of a case of looking ahead to today’s slate which includes Fed non-voter Bullard and voters Williams and Barr ahead of Chair Powell’s testimony in Congress tomorrow. Morgan Stanley’s Wilson remains of the view that stocks in the US could be about to see a U-turn as declining fiscal support and falling inflation will weigh on equities in H2 2023. Elsewhere, analysts at Berenberg state that US tech valuations are stretched and are sending a sell signal, whilst there is a lack of a directional impulse for European tech names despite the latter showing a 49% premium to global equities.


• Equity sectors in Europe have a negative bias with Chemical names bottom of the pile after a profit warning from Lanxess (-17.5%) with the Co. citing generally weak demand, especially in the construction industry, electronics and consumer-related products. The update from Lanxess has weighed on the likes of Covestro (-6.6%), Wacker Chemie (-5.3%) and BASF (-3.1%). Elsewhere, Autos & Parts and Basic Resource names are also on the backfoot with the latter hampered by broad softness in metals prices as China stimulus measures overnight underwhelmed some in the market. To the upside, Utilities and Health Care names sit in positive territory with the latter supported by gains in Sanofi (+2.5%) after an arbitral tribunal dismissed the claim brought by Boehringer Ingelheim against the Co. for indemnification of potential liabilities related to the ongoing Zantac litigation in the U.S. Finally, one to watch comes from the FT which reports that UBS (-1.1%) could potentially be subject to hundreds of millions of dollars in penalties re. Credit Suisse’s Archegos Capital mishandling.

20 Jun 2023 - 09:43- Research Sheet- Source: Newsquawk