EUROPEAN EQUITY UPDATE: Stocks look to claw back lost ground, Italian banks on the frontfoot

Analysis details (09:20)

• European equities (Eurostoxx 50 +1.2%) trade on the front-foot in an attempt to claw back yesterday’s losses which were triggered by soft Chinese trade metrics and Italian banking woes. On the latter, Italian banks are on the front foot (Finecobank +4.7%, UniCredit +3.5%, Banco BMP +2.7%, Intesa Sanpaolo +2.3%) and supporting the FTSE MIB (+1.7%) after news that the government has acted to limit the impact of the surprise windfall tax on banks whereby the levy on net interest income will be capped at 0.1% of risk-weighted assets, which is a fifth of the level analysts had suggested the levy could reach, according to The Times. Accordingly, Jefferies notes the adjustment will halve the estimated hit on average CET1 to 30bps. In terms of macro updates for the session, things have been particularly quiet for the region since yesterday’s close and may well remain so given the barren calendar.


• Asia-Pac stocks traded mixed as participants digested a deluge of earnings releases and the latest inflation data from China. ASX 200 (+0.4%) was just about kept afloat by the outperformance in its top-weighted financial sector after Australia’s largest lender CBA posted a record FY profit. Nikkei 225 (-0.4%) ultimately weakened with trade initially indecisive amid an influx of earnings releases and with the biggest winners and losers all driven by corporate results including SoftBank which was near the bottom end of the spectrum after its surprise loss. Hang Seng (+0.2%) and Shanghai Comp. (-0.5%) were mixed with the latter underperforming on the mixed inflation data from China which showed CPI Y/Y slipped into deflation territory, albeit at a narrower-than-expected drop in prices and M/M consumer prices unexpectedly increased, while China’s factory gate prices continued to fall at a steeper than forecast pace.


• US equity futures (ES +0.3%, NQ +0.3%, RTY +0.4%) are trading on the front foot in an attempt to make up for some of the losses experienced in yesterday's session, with optimism seemingly returning to the markets. And further adding to optimism, Fed’s Harker said sometime, probably next year, the Fed will start cutting rates and he doesn't want to overdo it with Fed tightening. In terms of the September decision, he stated that barring any "alarming" new data by mid-September, "we may be at the point where we can be patient and hold rates steady". So, the next piece of important data the markets will keenly await is tomorrow's inflation data. The consensus view looks for US consumer prices to rise +0.2% M/M in July (prev. +0.2%), though the annual rate is seen ticking up to 3.3% Y/Y from 3.0%. The core rate of inflation is also expected to rise +0.2% M/M, matching the pace seen in June, with the annual rate of core inflation seen unchanged at 4.8% Y/Y. The calendar is thin today, with nothing by way of data, but traders will keep an eye out for supply from the US as well as earnings from Walt Disney.


• Equity sectors in Europe are mostly positive with Basic Resource names top of the leaderboard amid a bounceback in metals prices following yesterday’s China-induced selling, whilst Energy names have benefited from a pick-up in crude prices. Other gainers include Tech and Banking names with the latter underpinned by aforementioned gains in Italian banks and overshadowing post-earnings losses in ABN AMRO (-2%). To the downside, Travel & Leisure names lag peers amid post-earnings losses in Flutter Entertainment (-5.6%), whilst the sector also saw quarterly results from Tui (+1%) which saw the Co. swing back into profitability and provide an upbeat outlook. Other notable corporate updates include Delivery Hero (+7.9%) which sits at the top of the Stoxx 600 after reporting stronger-than-expected revenues and raising revenue guidance. Continental (+1.7%) shares are higher despite lowering its sales outlook amid softer demand conditions in Europe. To the downside, Ahold Delhaize (-3.1%) shares have struggled post-results whilst Novo Nordisk (-2.1%) has given back some of yesterday’s chunky gains which were triggered by a positive update for its weight-loss drug.

09 Aug 2023 - 09:20- Research Sheet- Source: Newsquawk