EUROPEAN EQUITY UPDATE: Stocks mixed as European earnings ramp-up and LVMH weighs on the CAC 40

Analysis details (09:33)

• European equities (Eurostoxx 50 -0.6%) trade mostly lower with the exception of the Ibex 35 (+0.2%) and FTSE MIB (+0.4%) which have been supported by domestic earnings releases (Santander for the former and Stellantis & UniCredit for the latter) in what has been a particularly busy morning of corporate updates. From a macro perspective, fresh fundamental drivers have been lacking during today’s session with the tone in the run up to tomorrow’s ECB policy announcement framed in the context of soft PMI releases earlier in the week and yesterday’s ECB Bank Lending Survey & Ifo; all of which will not be enough to deter the ECB from hiking rates by 25bps tomorrow but have seen markets take a more cynical view of rate increases beyond this month.


• Asia-Pac stocks traded mixed with most bourses lacking firm direction heading into the looming major central bank policy decisions beginning with the FOMC later today and US equity futures were contained overnight as participants digested the latest big tech earnings and guidance. ASX 200 (+0.9%) outperformed with gains led by the mining industry and the top-weighted financials sector, while participants also reflected on the mostly softer-than-expected inflation data which showed headline CPI Q/Q was at its slowest pace of increase since 2021. Nikkei 225 (Unch.) swung between gains and losses with the mood indecisive as softer Services PPI data from Japan added to the second-guessing surrounding this week’s BoJ meeting. Hang Seng (-0.4%) and Shanghai Comp. (-0.3%) were weaker after the prior day’s stimulus boost lost steam but with downside limited owing to wide expectations for further support measures and after the PBoC upped its liquidity efforts, while China also replaced the head of its central bank amid the increasing challenges facing its economy.


• US Equities (ES +0.1%, NQ -0.1%, RTY +0.3%) are trading varied following yesterday’s Big Tech earnings which were mixed, with Alphabet rising after top- and bottom-line beats, though Microsoft (MSFT) was lower in extended trading after issuing soft guidance, as was Snap (SNAP). Markets will be looking towards the FOMC Policy Announcement at 19:00 BST / 14:00 ET, in which Powell is widely expected to deliver a 25bps hike to 5.25-5.50%. Therefore, markets will be more attentive to any guidance on future moves, with many already seeing the Fed arriving at Terminal after today’s hike. However, Powell is likely to reiterate the Fed’s “data dependant” approach, hence will not commit to any future decisions. In terms of how the market could react, JPM’s scenario analysis indicates that the SPX will add 25-75bps on the day, should the Fed "Hike & Pause". JPM believes this is the most probable outcome of today's announcement. On the data front, the calendar is sparse, with New Home Sales the only release of note.


• Analysts at Barclays note that equity positioning has increased as “more investors get drawn into the disinflation trade”. However, the desk cautions that macro risks mean that safety provided by tech/quality/growth remains in demand. Barclays adds that despite improved breadth, Europe is for sale, whilst value-cyclicals/small caps/ leveraged plays are under-owned meaning that a further broadening of the rally will be a pain trade.


• Equity sectors in Europe have a slightly negative tilt with discrepancies between industries mostly a by-product of a raft of earnings releases. Consumer Products & Services lags peers amid post-earnings losses from LVMH (-3.8%) which is also prompting some underperformance in the CAC 40 (-1.1%) and weighing on other luxury names such as Moncler (-2.0%), Kering (-1.9%), Hermes (-1.6%) and Burberry (-1.3%). Despite reporting better-than-expected sales figures, some analysts are focusing on slowing momentum in the US with JPM of the view that the end of positive earnings revisions for the sector could be nearing. Elsewhere, Basic Resource names are also feeling the pressure alongside downside in some underlying metals prices as the optimism from Chinese stimulus pledges begins to fade; today has also seen H1 earnings from Rio Tinto (-2.4%) and a production update from Fresnillo (-1.7%). It’s been a busy morning for the banking sector with results from the likes of UniCredit (+1.7%), Santander (+1.1%), Lloyds (-3.0%) and Deutsche Bank (-0.6%), however, the main story for the industry has come via Alison Rose’s decision to step down as CEO of NatWest (-3.6%) over the Nigel Farage banking scandal. In terms of individual updates, Rolls Royce (+20.4%) is the standout performer within the Stoxx 600 after raising guidance as the Co.’s turnaround plan continues to take effect. Other post-earnings gainers include the likes of Aston Martin (+4.2%), Puma (+2.8%), RWE (+2.5%), BAT (+2.3%), Telefonica Deutschland (+1.9%), Stellantis (+1.9%) and GSK (+1%). To the downside, losers include, Hexagon (-5.4%), Orange (-3.8%), Danone (-3.1%), Reckitt (-2.4%), EssilorLuxottica (-1.9%) and Porsche (-1.6%).

26 Jul 2023 - 09:33- Fixed IncomeData- Source: Newswires