EUROPEAN EQUITY UPDATE: Stocks mixed with the FTSE 100 underperforming as Basic Resources slip

Analysis details (09:35)

• European equities are mixed (Eurostoxx50 +0.2%) with the FTSE 100 (-0.2%) the clear underperformer, hampered by losses in Basic Resources after Chinese inflation metrics on Saturday, which showed deeper deflation in both CPI and PPI. The docket today has been, and will continue to remain lacklustre for the European session – the focus will turn to the US NY Fed Survey of Consumer Expectations in the afternoon ahead of a week packed with risk events. 


• Economists at Goldman Sachs recently said it expects the ECB to execute its first rate cut in April and forecast rates to reach 2.25% by early 2025. GS analysts add that the 10% rally since October suggests that much of the rate-cut optimism has already been priced in – though continues to raise its short/medium targets for the Stoxx 600.


• European sectors are mixed with the breadth of the market to the upside fairly narrow. Healthcare and Industrial Goods & Services are towards the top of the pile, with the former lifted by Roche (+3.2%) after the Co. announced several positive results from its studies. Additionally, MorophoSys (+11.2%) shares spiked after the Co. said Pelabresib improves all four hallmarks of Myelofibrosis in the Phase 3 MANIFEST-2 study. On the downside, Basic Resources lags with Glencore (-1.6%) and Rio Tinto (-1.3%) both suffering from poor Chinese CPI data. Anglo American (+1.1%) initially found itself in the red, though did lift off lows since the open. The Times, citing analysts, reported that the Co. faces potential takeover or merger interest after a GBP 30bln valuation drop last week. Also towards the foot of the sectors, Food Beverage & Tobacco is weighed on by Nestle (-0.9%) and Pernod Ricard (-0.6%) after both received downgrades at Jefferies and HSBC respectively. In terms of individual movers, Encavis (-5.5%) posts losses after receiving a downgrade to Underweight from Equal Weight at Morgan Stanley.


• Asia-Pac stocks traded mixed as the region digested recent data releases including stronger-than-expected jobs data from the US and worsening deflation in China, while this week’s upcoming risk events including US CPI data and a deluge of central bank updates added to the cautious mood. ASX 200 (+0.1%) just about kept afloat with price action rangebound as outperformance in the energy sector atoned for the lacklustre mood in metal miners and tech. Nikkei 225 (+1.6%) was the biggest gainer following a pushback on recent BoJ speculation in which a source report on Friday noted recent comments by BoJ Governor Ueda were taken out of context and there was no intention by Ueda to signal "anything about the timing of a policy change". Hang Seng (-0.8%) and Shanghai Comp. (+0.7%) were both initially pressured amid weakness in tech and property, while the data over the weekend showed a larger-than-expected decline in China’s consumer inflation and factory gate prices which suggests weak demand in the world’s second-largest economy. Though towards the latter end of trade, Shanghai climbed into the green, whilst the Hang Seng pared some of its losses.


• US equity futures (ES U/C, NQ -0.1%, RTY +0.1%) are flat/mixed, with markets ultimately lacking direction as markets await US CPI tomorrow ahead of the FOMC meeting on Wednesday. There is little on the docket for today, with US Employment Trends and NY Fed Survey of Consumer Expectations the only releases of note, though markets will also be aware of a 3-year and 10-year auction. Of note for Semiconductor names, reports over the weekend from Asia Times noted that Taiwan has banned exports to mainland China of “know-how and raw materials” which could be used to make chips smaller than 14 nanometers. Keep an eye out for TSMC (TSM, -0.3%) for any potential read-across following these reports.

11 Dec 2023 - 09:40- Research Sheet- Source: Newsquawk