EUROPEAN EQUITY UPDATE: Stocks look to atone for last week’s losses

Analysis details (09:40)

Stocks in Europe have kicked the week off on the front foot (Eurostoxx 50 +0.6%) as the region looks to atone for some of the losses seen last week. Incremental macro drivers for Europe remain light following last week’s central bank action with today’s better-than-expected German IFO report unable to move the tape despite the release noting that the likelihood of a recession has reduced with today’s data. Elsewhere, the focus will be on attempts by the EU to broker a deal on a gas price cap with the latest reporting suggesting that nations are considering a cap at lower levels than suggested to date. The APAC session was a mostly despondent one with the COVID situation in China front of mind and with Japanese stocks dented by reporting suggesting that Japan's government is set to revise a 10-year-old joint statement with the BoJ that commits the central bank to achieve its 2% inflation "at the earliest date possible", although this was downplayed by the Japanese Chief Cabinet Secretary. US futures (ES +0.4%, NQ +0.3%, RTY +0.3%) are on a firmer footing following Friday’s losses with Fed speak over the weekend continuing to lean hawkishly as non-voter Daly noted that everyone at the Fed expects rates to be on hold for all next year whilst non-voter Mester said she expects the Fed to hike more than its median forecast. Morgan Stanley strategists suggest that although rates and inflation peaking is bullish for bonds, the same cannot be said for stocks. Instead, MS notes that the impact of slowing inflation and growth should act as a warning sign for equities with the earnings outlook deteriorating, adding that its EPS forecast of USD 195, if realised, would see price declines which would be worse than what most investors are expecting. Elsewhere, analysts at Bernstein hold a market-weight view on the tech sector on account of expensive valuations and expectations that tech names will not grow at a material premium to the market. Sectors in Europe are mostly firmer with the exception of minor losses in Media and Real Estate names. To the upside, Energy is by far the best performing sector after lagging on Friday and with crude prices higher in excess of 1% for WTI and Brent. Other notable gainers include Basic Resources, Autos and Travel & Leisure. Marks & Spencer (-0.5%) is posting mild losses following a broker downgrade at JP Morgan whilst Leonardo (-0.4%) is a touch softer after reports suggested the Co.'s CEO could come under investigation following a loan scandal with BMPS. Finally, Aston Martin (+1.1%) is firmer following news that Lawrence Stroll and backers have increased their stake in the Co. to around 27.9%.

19 Dec 2022 - 09:40- Fixed IncomeResearch Sheet- Source: Newsquawk