EUROPEAN EQUITY UPDATE: Stocks lose steam as CPI looms, but earnings take focus until then

Analysis details (10:29)

Equities in Europe kicked off the session with a positive bias as earnings and Wall Street tailwinds dictated early price action. Since then, stocks have come off best levels (Euro Stoxx 50 +0.2%; Stoxx 600 -0.3%) despite any distinct newsflow, but ahead of US CPI and several central bank speakers – with ECB’s Chief Economist Lane, BoE Governor Bailey and Fed’s Barkin among those scheduled. With geopolitics also in vogue, Russia is poised to commence military drills with Belarus and in the Black Sea – and Ukraine is set to reciprocate with their drills. Diplomatic efforts will likely not be fruitful until Russia is satisfied with its security demands. Meanwhile, US-China trade headlines have also been picking up, albeit this theme’s weight on sentiment will likely take more time to materialise (barring any sudden escalations). US equity futures are subdued this morning with some mild underperformance seen in the NQ (-0.4%) vs the ES (-0.2%), RTY (-0.3%) and YM (Unch). Strategists at Bernstein advocate investors to keep buying stocks despite the volatility and recent rise in yields – “Real yields can rise another 40bps in the U.S. before the equity risk premium hits the long-run average level”. The analysts also favour sectors such as energy, tech, consumer discretionary and financials, whilst the more defensive utilities and healthcare are the least attractive. The desk also suggests that the tech sector is still overcrowded despite the recent rotation to value. Back in Europe, the earlier positive performance across the bouses has recalibrated to a mixed picture. The Dutch AEX (-0.8%) remains the clear laggard as Unibail Rodamco (+7.0%) fails to offset post-earnings losses from index heavyweights Unilever (-2.8%) and ArcelorMittal (-3.2%). From an inflation perspective, Unilever - the multinational consumer goods Co. - stated it “currently expect[s] very high input cost inflation in the first half... This may moderate in the second half". Elsewhere, the DAX 40 (+0.1%) holds onto gains as Siemens (+5.8%) topped EPS and revenue forecasts. Sectors are also mixed with no overarching theme aside from earnings. Banks are propped up as bond yields remain supported, and despite the litigation-hit earnings from Credit Suisse (-4.4%), while Credit Agricole (+1.6%) and SocGen (+4.2%) metrics were more constructive. Basic Resources’ upside is capped as ArcelorMittal (-3.2%) and Thyssenkrupp (-1.0%) remain in the red, with the former also forecasting a less upbeat view on FY global steel consumption expectation. Healthcare is the top performer as one of the largest sectorial constituents – AstraZeneca (+4.0%) soars post-earnings. Consumer Products and services reside at the foot of the bunch given Unilever’s aforementioned performance, whilst Delivery Hero (-28.5%) plumbed the depths despite overall decent numbers, with analysts citing underwhelming 2022 projections – which is also pressuring delivery peers such as Deliveroo (-4.0%) and HelloFresh (-4.0%). In terms of other movers, L’Oreal (-2.8%) is softer despite record 2021 sales as margins fell short of expectations. Finally, ATOS (-5.2%) resides among today’s losers as the Co. announced it will be reporting a goodwill impairment of around EUR 1.9bln.

10 Feb 2022 - 10:29- Fixed IncomeData- Source: Newsquawk