EUROPEAN EQUITY UPDATE: Stocks mixed as ECB judgement looms

Analysis details (09:20)

• European equities (Eurostoxx 50 -0.2%) trade on a mixed footing with focus for the region squarely on today’s ECB policy announcement. 39/69 analysts surveyed by Reuters expected the ECB to stand pat on the deposit rate at 3.75%, with the remaining 30 looking for a 25bps hike to 4.0%. Since the survey was taken, a sources piece by Reuters News noted that the 2024 inflation forecast is expected to be revised higher from the 3% in June. As such, markets now assign a 68% chance to a 25bps hike. A decision to either keep rates unchanged or hike by 25bps will likely see markets judge that the Bank has reached terminal with some scepticism that the Bank would be able to get a consensus for further tightening after a pause today, whilst a hike today would be viewed as one last tightening push by the GC.


• Analysts at UBS anticipate a 10% decline in European stocks by the end of the year as softening new orders and backlogs increase the risk of profit warnings for companies in the region. More specifically, analysts at UBS forecast the Stoxx 600 to break out of its current 450-470 range and close the year out around 410. The desk adds that it would expect cyclicals to lag defensives and has a preference for utilities over capital goods and banks and energy over autos.


• Asia-Pac stocks traded predominantly higher and mostly shrugged off the indecision seen amongst Wall St counterparts in the aftermath of a somewhat hawkish-leaning US inflation report which saw an acceleration in headline CPI but the Core Y/Y reading continued to slow. ASX 200 (+0.5%) was marginally higher amid strength in the commodity-related and financial sectors, while the latest employment data provided encouragement but was predominantly fuelled by an increase in part-time jobs. Nikkei 225 (+1.5%) outperformed and rose back above the 33,000 level amid anticipation of incoming stimulus and with the index unfazed by disappointing machinery tool orders. Hang Seng (+0.2%) and Shanghai Comp. (+0.1%) were choppy after a substantial liquidity drain by the PBoC and with strength in energy and power names offset by pressure in EV makers after reports the European Commission is to begin an anti-subsidy investigation into Chinese EVs.


• US equity futures (ES +0.2%, NQ +0.2%, RTY +0.1%) are trading on the front foot after choppy trade in yesterday's session following the much anticipated US CPI. As expected, headline CPI rose to 3.7% (prev. 3.2% YY), which was largely ignored for the core CPI which came in as expected at 4.3% (prev. 4.7% YY). In terms of what lies ahead, markets will await US PPI, Retail Sales, and the weekly Initial Jobless Claims. Taking a deeper look at the data, markets are expecting mixed PPIs, where the annual rate of headline PPI is seen picking up (energy prices have been driving inflation headlines higher), though the core measure is expected to pare back a little. Meanwhile, the growth in August retail sales is expected to cool, while the control group is likely to have slipped in the month, whilst weekly claims data are seen ticking up a touch vs. last week’s level. The early morning session is exceptionally busy today, with the ECB Policy Announcement (13:15 BST/ 08:15 ET) and President Lagarde’s Press Conference (13:45 BST/ 08:45 ET) to take place on either side of the US data releases at 13:30 BST/08:30 ET.


• Equity sectors in Europe are a mixed bag with Basic Resources the clear outperformer amid gains in Rio Tinto (+2.7%) and Anglo American (+2.7%) who were subject to a broker upgrade and price target hike respectively at JP Morgan, amid the strong outlook for iron ore prices. Elsewhere, energy names are benefitting from strength in underlying crude prices and a bounceback in BP (+1.7%) shares whilst Autos lag to the downside with BMW (-2%) a notable underperformer in the group after being downgraded to underweight from equal weight at Barclays. In terms of individual updates, Deliveroo (+4.8%) shares are higher on the session following reporting by Bloomberg that the Co. is said to be discussing a defence strategy in a run-up to a governance rejig, which will weaken Deliveroo founder and CEO Shu’s control of the Co. IG Group (+2.2%) shares are on the front foot following encouraging Q1 results, whilst Telefonica Deutschland (+1%) are higher after being upgraded to Buy from Neutral at Citi. To the downside, broker downgrades are acting as a drag on the likes of Remy Cointreau (-3.3%) and ADP (-2.6%).

14 Sep 2023 - 09:20- Research Sheet- Source: Newsquawk