EUROPEAN EQUITY UPDATE: Stocks marginally firmer ahead of US mega-bank earnings

Analysis details (09:29)

• European equities (Eurostoxx 50 +0.1%) broadly trade with modest gains in what has been a quiet start to the session. ECB speak has seen comments from renowned hawk Knot who describe a July hike as a necessity but refrained from pushing for a September hike by stating that such a move is possible but not a certainty. As we have mentioned frequently in our commentary, there is a lot of data due between now and September and short-term visibility has been limited throughout the current hiking cycle. That said, the fact that a known hawk such as Knot is not talking up a September move at this stage is clearly of note and has prompted a modest pullback in yields.


• Asia-Pac stocks were mostly lower after the region failed to sustain the momentum from Wall St. ASX 200 (-0.2%) was subdued as participants digested the RBA Minutes from the July 4th meeting which noted that the Board agreed some further tightening may be required. Nikkei 225 (+0.2%) marginally advanced on return from the long weekend. Hang Seng (-2.2%) and Shanghai Comp. (-0.4%) were lower with property stocks leading the declines in Hong Kong after the long-delayed results from the world’s most indebted developer Evergrande. The US-China relationship remained in focus amid reports the US aims to propose China investment limits by the end of next month and that President Biden is weighing new curbs on chips and semiconductor-making devices.


• US equity index futures are trading around flat ahead of more key bank earnings due in the premarket, as well as retail sales data and IP. On the earnings front, there are a few key financials on today's earnings docket, including: Synchrony Financial (SYF), PNC Financial (PNC), Bank of New York Mellon (BK), Bank of America (BAC), Morgan Stanley (MS), Charles Schwab (SCHW). Elsewhere, Lockheed Martin (LMT) and JB Hunt (JBHT) are also on today's release slate. Also of note, Fed's Vice Chair for Supervision Barr will speak on fair lending practices; his remarks will come amid reports that bank regulators will next week release plans for an overhaul of capital rules, with rules that will go beyond Basel standards for some large lenders.


• Goldman Sachs says the economic narrative has now turned, and has lowered its estimate of the probability of a US recession in the next year to 20% from 25% due to data supporting confidence in managing inflation without a recession. Goldman says that valuations remain a challenge, but near-term news flow is expected to support risk assets, including positive earnings performance, favourable credit conditions, and a weaker dollar, while the oil market rally is seen continuing. Analysts at Citi note that “positioning through July shows that investors are biased towards positive news” whereby market weakness at the beginning of the month had little impact on positioning, however, recent more favourable economic data has prompted “large new longs building on the SPX”. Citi adds that “US markets now pose the largest positioning risk given the extended positioning and large implied profits”.


• Equity sectors in Europe have a modest positive tilt with Consumer Products & Services and Health Care top of the leaderboard with Swiss-heavy weight Novartis a key driving force for the latter and also helping prompt outperformance in the SMI (+0.6%). Novartis (+3.9%) reported better-than-expected Q2 results, raised guidance and announced a USD 15bln buyback. To the downside, Telecom names are the clear laggard following post-earnings declines in Tele2 (-9.8%) which has seen other providers dragged lower in sympathy. Elsewhere, Ocado (+15.3%) is the best performer in the Stoxx 600 post-H1 earnings with subsequent commentary from the Co.’s CEO refraining from commenting on takeover speculation from Amazon. Darktrace (+19.0%) is another standout performer following prelim. FY results which saw the Co. match expectations for its earnings and no new findings from the EY review. Finally, the chip sector will likely remain in focus amid reporting from Bloomberg that US President Biden is weighing new curbs on chips and semiconductor-making devices.

18 Jul 2023 - 09:29- Research Sheet- Source: Newsquawk