EUROPEAN EQUITY UPDATE: Stocks lack firm direction amid more earnings in the run-up to the US jobs report

Analysis details (09:01)

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  European equities opened modestly firmer on Friday before quickly reverting to a mixed picture with a lack of macro newsflow at the time, whilst participants brace for the US jobs report later in the European afternoon. The overnight sentiment reverberated to Europe as most bourses in the APAC region lacked firm direction after a lacklustre handover from the US, while participants reflected on tech giant earnings. Hang Seng and Shanghai Comp were positive with gains spearheaded by the property sector after the latest policy support pledges by the PBoC which announced it is to roll out guidelines to support private firms and will expand debt financing tools, as well as implement differentiated housing credit policies.


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  Stateside, US stocks finished marginally lower on Friday before mega-cap earnings. After the US close, Amazon (+8.7% aftermarket) reported blowout earnings and issued upbeat guidance and thus surged after hours. On the flip side, Apple (-2.1% aftermarket) was lower as its rate of sales continues to decline. US equity futures are relatively mixed (ES +0.3%, NQ +0.4%, RTY -0.1%, YM +0.1%) with Amazon doing the heavy lifting in the ES and NQ with a 5.1% weighting in the NDX, and a 3% weighting in SPX, whilst Apple caps gains in the futures with a 11.6% weighting in the NDX and 7.5% weighting in the SPX. Traders look ahead to the US jobs reports - the street expects 200k nonfarm payrolls to be added to the US economy in July, slightly cooling from the 209k added in June. The jobless rate is expected to remain unchanged at 3.6% (note: the FOMC’s latest projections anticipate the jobless rate will rise to 4.1% by the end of this year, before ticking up to 4.5% next year). On the wage measures, the consensus expects a cooling to 4.2% Y/Y from 4.4%, with the monthly print expected at +0.3% M/M (prev. +0.4%). SGH Macro's Tim Duy suggests that if the data is in line with market expectations, and the context of a GDP growth rate running above 2%, it keeps the prospect of an FOMC rate hike on the table at the October and/or November meetings, and adds that anything below 200k will give the Fed scope to continue to pause on rate changes. – Full Newsquawk Preview available in the Research Suite.
  


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  Back in Europe, indices are mixed (Euro Stoxx 50 +0.3%, Stoxx 600 Unch) though the broad Stoxx 600 and the narrow Euro Stoxx 50 remain on course to snap a run of three weeks of gains following a heavy week of central banking updates, as well as key corporate earnings. On that note, as we progress through the European earnings season, Citi notes that companies that reported misses on expectations thus far have sold off more aggressively than they did in the prior quarter with the desk stating that companies who beat estimates were rewarded with an average gain of 1.3%, whilst those who missed saw a more pronounced decline of 2.5%. Overall, Citi is of the view that earnings season for the region has been “reasonably good” with just over 50% of firms reporting better-than-expected EPS estimates. That said, it is worth noting that such a figure is below the long-term average of 57%. Moving forward, analysts at Morgan Stanley suggest that European stocks should remain weak during the summer months as a result of soft earnings in H2 with pressures on margins and sales to continue to build. On a comparative basis, JP Morgan notes that earnings have been weaker in Europe compared to the US with the latter aided by a softer USD. JPM adds that 61% of Stoxx 600 earnings have exceeded expectations compared to around 81% for the S&P 500, whilst noting that stock moves for the latter have been muted with below-average gains post-earnings and greater declines than average for those who miss.


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  Sectors in Europe are mixed with no overarching theme – Travel & Leisure is bolstered by European airliners among the top gainers – potentially as US-listed Booking Holdings (+11.6% aftermarket) flagged a record summer season. Energy ranks second as oil prices remain underpinned ahead of the JMMC confab. Banks are supported by the broader yield environment coupled with earnings from Credit Agricole (+4.2%), although Commerzbank (-5.0%) shares overlooked an overall stellar report, with analysts citing a lack of detail on share buybacks as a reason for the losses. Sectorial laggards see Media at the bottom of the bunch as WPP (-7.0%) cut guidance with peers lower in sympathy. Chemical sits as the second-worst performer at the time of writing with Lanxess (-1.7%) delivering a bleak outlook alongside their earnings and suggesting "There is currently no sign of a recovery in demand anticipated for the second half of the year." Finally, shipping giant Maersk (+0.2%) delivered interesting macro commentary against the backdrop of waning demand - in which it noted that "Overall, the environment for container trade and logistics services remains challenging. Currently there is no sign of a substantial rebound in volumes in the second half of the year", whilst "In Q2, the demand for containers declined between 4.0% and 6.5% year-on-year, due to weak import growth into North America, Oceania and Far East Asia."

04 Aug 2023 - 09:04- EquitiesData- Source: Newsquawk