EUROPEAN EQUITY UPDATE: Stocks mixed as ECB looms

Analysis details (09:39)

• European equities (Eurostoxx 50 -0.2%) trade with little in the way of firm direction as markets digest the fallout from yesterday’s FOMC announcement, soft Chinese data and additional PBoC support measures, whilst looking ahead to today’s ECB policy decision. On which, all 62 economists surveyed by Reuters expect the ECB to come to market with another 25bps hike, taking the deposit rate to 3.50%. As such, the immediate policy announcement by the Bank should pass with little in the way of fanfare. Potentially of greater interest for the markets will be what happens beyond June. From a guidance perspective, the ECB will likely continue to reiterate its "data-dependent" approach whilst taking decisions on a meeting-by-meeting basis. That said, nobody from the ECB so far has got in the way of market pricing which pencils in another 25bps hike in July, whilst nothing is priced in yet for September.


• Asia-Pac stocks traded mostly higher but with gains capped in the aftermath of the FOMC, while the attention in the region shifted to the slew of key data releases. ASX 200 was kept afloat in rangebound trade with the tailwinds from stellar jobs data partly clouded after Australia’s 3y/10y yield curve inverted for the first time since 2008. Nikkei 225 was underpinned amid further currency depreciation and mostly better-than-expected data releases from Japan including Exports and Machinery Orders. Hang Seng and Shanghai Comp. were positive with advances in HK led by property names amid expectations for more support measures for the industry and after Chinese House Prices returned to growth. Furthermore, the PBoC cut its 1-year MLF rates by 10bps following similar cuts to short-term funding rates although participants also digested disappointing activity data from China after both Industrial Production and Retail Sales missed estimates.


• US equity futures (ES -0.1%, NQ -0.1%, RTY -0.1%) are a touch below the unchanged mark with the ES managing to hold above 4400. It’s very much a case of the morning after the night before as traders digest yesterday’s FOMC announcement which saw policymakers add two additional hikes to its 2023 dot plot; something which was later downplayed by Powell in his press conference. Fed-watcher Duy suggests that “rates are most likely moving higher in July, and our baseline is that either growth is too strong, or inflation has not had a sufficient string of good numbers, to allow the Fed to skip the Oct/Nov meeting”. Looking ahead for the US docket, it’s a busy one on the data front with weekly jobs figures, retail sales, NY Fed manufacturing and Philly Fed business index all due at 13:30BST followed by Industrial Production at 14:15BST.


• As part of its European equity strategy, HSBC upgraded the healthcare sector to overweight from underweight, whilst downgrading Real Estate and Basic Materials to underweight from neutral and Financials to neutral from overweight. In its UK strategy, HSBC upgraded Construction & Materials to neutral from underweight and Healthcare to overweight from underweight. HSBC downgraded Banks to neutral from overweight, Retail and Media to underweight from overweight and Real Estate to underweight from neutral.


• Equity sectors in Europe have a negative tilt with Basic Resource names bottom of the pile amid underlying weakness in metals prices following soft Chinese activity data overnight, whilst Stora Enso (-3%) is a laggard within the group following a restructuring which will see the Co. cut 1,150 jobs. Elsewhere, Banks are also pressured after the EU’s top court ruled that Polish banks cannot charge for the cost of capital in FX mortgage contracts which have been deemed as invalid, adding that consumers with such contracts can demand compensation from banks; BNP Paribas and Commerzbank have been impacted by the news. To the upside, Retail names outperform peers with H&M (+6.4%) the best performer in the Stoxx 600 following its Q2 sales update which saw the Co. note a good start to June. Also of note for the sector, Asos (+14%) shares are markedly higher following its latest trading update in which it recorded a return to profitability.

15 Jun 2023 - 09:39- Fixed IncomeData- Source: Newsquawk