EUROPEAN EQUITY UPDATE: Stocks off lows but without clear conviction ahead of US midterms

Analysis details (09:54)

Major bourses in Europe portray a mixed picture with no clear conviction seen heading into the US mid-term elections, where Republicans are expected to take the House, although the Senate race is a closer call (Newsquawk’s full preview is available in the Research Suite). Last week, BofA neatly summarised that a Republican win says that the electorate wants low inflation, a Democrat win would suggest that the electorate wants low unemployment; a GOP win would imply tighter monetary policy, and more yield curve inversion, while a Democrat win would imply looser fiscal policy and a steeper yield curve. HSBC says a split Congress would raise the prospect of legislative gridlock until the Presidential elections in 2024. In terms of the market reaction, UBS notes that the S&P 500 has on average returned around 6% over the last 18 Midterms since 1950, from September to year-end, with 14% returns from October to March. US equity futures were modestly divergent in early European trade but have since come off lows (ES +0.1%, NQ +0.3%, RTY +0.2%) with the ES finding some support at 3,800, whilst the NQ trades on either side of 11,000. Analysts at Citi suggest that positioning in most equity markets remains bearish, whilst some existing profit/loss positions look increasingly stretched. The bank notes that Nasdaq positioning is one-sided, with short positioning near a three-year high, whilst S&P 500 short positions grew. Citi also suggests that short profits continued to build last week and could lead to some bounces in the market amid profit-taking. In Europe, the bank said bearish positioning remained despite the region closing higher last week – “Short loss levels on the Euro Stoxx and DAX could lead to forced unwinds”. Back in Europe, a choppy/contained session is experienced at the time of writing (Euro Stoxx 50 +0.1%; Stoxx 600 +0.2%) with some outperformance seen in the Dutch AEX (+0.6%) amid gains in chipmakers BE Semiconductor, ASML Holding and ASM International on the back of broker action for the sector at Morgan Stanley. Aside from that, peers are relatively flat/contained. Sectors are now mostly firmer (vs a mostly lower open) with Tech leading the charge with additional help from declining bond yields. Energy and Basic Resources sit as the sectoral laggards amid declines in underlying commodity prices. In terms of individual movers, Pandora (+6.8%) is at the top of the Stoxx 600 after beating Revenue and EBIT expectations and raising guidance to the upper end of its prior forecast. AB Foods (+5.2%) also topped expectations whilst announcing a GBP 500mln share buyback. Porsche (+0.2%) is relatively flat after seeing a myriad of broker moves which were ultimately mixed. On the downside, Persimmon (-6.0%) and DCC (-5.0%) saw disappointing trading updates, whilst German heavyweight Bayer (-2.3%) missed on Net Income expectations.

08 Nov 2022 - 09:57- Research Sheet- Source: Newsquawk