EUROPEAN EQUITY UPDATE: Stocks mixed in narrow ranges and off best levels ahead of a busy Wednesday agenda

Analysis details (05:59)

Stocks in Europe trade mostly lower in what was a relatively caged session to start with following the mild losses on Wall Street yesterday and the mixed performance in APAC overnight. US equity futures also vary but hold a downside bias – with the YM (+0.3%) bucking the trend vs the ES (Unch), NQ (-0.3%) and RTY (-0.5%). The mood across Europe is cautiously tentative as a busy Wednesday agenda looms and with key risk events still on the short-term horizon – including Friday’s US payrolls and next week’s ECB meeting. On that note, ECB-hawk Holzmann backed the need for a 50bps hike in July – citing the record Eurozone inflation print; as it stands, markets price in 116bps of ECB tightening by year-end. Sticking with central banks, analysts at Citi suggest “The Fed will favour much lower inflation even if the labour market weakens and will continue to target lower JOLTS and lower equities in order to combat inflation. Apart from Fed headwinds, the equity market will likely face downwards revisions in earnings, which opens up a much larger left tail over the next 6-12 months.” Back in Europe, bourses are subdued with underperformance seen in yesterday’s outperformers – the Dutch AEX (-0.6%) and the FTSE 100 (-0.3%), with little to mention about their peers. Analysts at Barclays remain Overweight on the FTSE 100 but closed their Underweight on domestics/FTSE 250 – “The index has underperformed by ~16% ytd, its valuation premium has unwound and positioning in the space seems bearish. While the outlook for the UK economy remains challenging, the new fiscal package announcement reduces downside.” The S&P Global EZ Manufacturing PMI Final release this morning saw a modest revision higher to the prelim, but under the hood, the agency’s prognosis suggested “The survey’s output gauge is indicative of official manufacturing production falling slightly so far in the second quarter, and forward-looking indicators such as the orders-to-inventory ratio suggest the rate of decline will accelerate in coming months, absent a sudden revival of demand for goods. The eurozone economy, therefore, looks increasingly, and uncomfortably, dependent on the service sector to sustain growth in the coming months.", whilst the UK release was unrevised, but suggested, “The consumer goods sector was especially hard hit, as household demand slumped in response to the ongoing cost of living crisis.” Nonetheless, sectors in Europe are mostly lower with no overall theme or bias, whilst the breadth of the market is also narrow. Outperformance is seen in Auto & Parts alongside Banks – with the former potentially on China recently issuing new stimulus measures to boost auto sales, whilst the latter is propped up by a rise in yields. The downside sees Basic Resources, Media, Tech, and Travel & Leisure. In terms of individual movers: SAP (-0.7%) fails to piggyback on post-earnings gains from Salesforce (+7.7% pre-market), which saw top and bottom-line beats, a FY revenue view cut, and the FY profit view raised. DWS (-6.7%) is pressured after the CEO resigned following the recent raid on the firm - Stefan Hoops has been appointed new CEO, effective 10th June. Telecom Italia (-0.7%) is subdued after shareholder Vivendi (+0.6%) said it will never support the sale of the Telecom Italia's network for a valuation of EUR 17-21bln. This followed reports that Telecom Italia has attached an enterprise value of around EUR 20bln to its landline grid which it is considering selling as part of a national fibre network plan, according to Reuters sources. Finally, the second FTSE 100 reshuffle of the year will be announced after the close on Wednesday 1st June, based on the closing prices from Tuesday 31st May. The changes will then take effect on Monday 20st June. ITV (+0.8%) and Royal Mail (-1.9%) are guaranteed to be relegated, according to Yahoo Finance.

01 Jun 2022 - 09:59- EquitiesData- Source: Newsquawk