EUROPEAN EQUITY UPDATE: Stocks mixed as debt ceiling talks remain front of mind

Analysis details (09:35)

• European equities (Eurostoxx 50 flat) have kicked the week off on a mixed footing following Friday’s mild selling pressure on Wall Street with incremental macro drivers for the region lacking and as such indices will likely take direction from elsewhere with the US debt ceiling and Fed policy front of mind. The only outlying market in the region is the Athens stock index which is up around 6% on account of the likely continuation of the incumbent government following the weekend’s national election.


• APAC stocks were mostly positive but with price action range bound amid cautiousness as the debt limit deadline draws closer. Aussie shares were subdued, though losses were contained amid the improving trade environment between Australia and China. China shares were up; unsurprisingly, the PBoC maintained their benchmark lending rates with the 1-year LPR and 5-year LPR maintained at 3.65% and 4.30%, respectively. Nikkei 225 continued its recent solid performance after recently hitting a 33-year high.


• US equity futures are trading around flat as lawmakers in Washington failed to secure a debt ceiling deal by the weekend; House Speaker McCarthy has previously said that the House would need to vote by this week on any compromise to avoid a historic US default. But the constructive tone of President Biden is still offering hope that a near-term deal can be secured, and he is set to meet McCarthy for talks later today. Ahead, the docket is quiet today and as such, debt ceiling talks will likely be the key focus. For the rest of the week, PCE data will help colour market expectations of the Fed's trajectory, while we'll get a second look at US Q1 GDP data this week.


• Analysts at JP Morgan note that markets will need to negotiate what is likely to be an increasingly “challenging Growth-Policy tradeoff” in H2, a setup that could look very different to a near “Goldilocks" backdrop that investors got used to in the past three quarters. JPM adds that after two years of arguing profit margins will keep showing strength, “margins appear to be finally peaking”. The desk reiterates being underweight “value style for this year, and low beta positioning, with overall market levels that could provide a better entry point in H2”.


• European equity sectors are mixed and lacking in breadth with modest outperformance in Consumer Products & Services and Telecoms, whilst Basic Resources and Energy names narrowly lag. The tech sector might gain increasing attention as the session progresses following news that China’s cyberspace regulator has announced that operators of critical information infrastructure in China should stop purchasing Micron Technology’s products.


• Ryanair (+1.9%) shares are being rewarded with some upside following FY results which saw the Co. report stronger-than-expected adj. net and revenue metrics with accompanying commentary noting forward bookings and airfares currently into the summer are strong, peak fares are trending ahead of last year. Elsewhere, Volvo (+6.4%) sits at the top of the Stoxx 600 following news that Holcim will deploy up to 1,000 of their electric trucks  by 2030.

22 May 2023 - 09:35- Research Sheet- Source: Newsquawk