EUROPEAN EQUITY UPDATE: Stocks on track for week of gains as dovish Fed speak outweighs geopolitical angst

Analysis details (09:15)

• European equities (Stoxx 600 -0.1%) trade with little in the way of firm direction in what is set to be a week of gains for the region despite the geopolitical risks surrounding Israel and Palestine. The Stoxx 600 is on track for gains of around 1.8% for the week with global equity markets buoyed throughout the week by commentary from Fed officials indicating that the recent increase in bond yields has helped to keep financial conditions tight and therefore an additional rate hike has been deemed to be less likely despite firmer-than-expected US inflation metrics this week. Closer to home in Europe, this week has seen an avalanche of ECB speakers infer that October will see the Bank confirm a pause in its rate hiking cycle. That being said, from an inflationary standpoint, traders are cognizant of developments in the energy market after Dutch TTF prices have continued to climb and now sit north of EUR 50/MWh.


• Asia-Pac stocks were mostly lower amid headwinds from the, while the region also digested softer-than-expected inflation and mixed trade data from China. ASX 200 (-0.5%) was pressured with underperformance in real estate and tech alongside rising yields. Nikkei 225 (-0.6%) traded negatively but with price action choppy and downside initially stemmed as Japan plans to release an economy security plan to protect vital industries like semiconductors and with index heavyweight Fast Retailing boosted by earnings. Hang Seng (-2.4%) and Shanghai Comp. (-0.6%) were lower with tech the worst hit in Hong Kong amid broker downgrades and as the US reportedly eyes closing a loophole that gives Chinese companies access to American AI chips via units located overseas. Furthermore, Chinese inflation data underwhelmed with consumer inflation flat and factory gate prices at a deeper-than-forecast decline, while participants also reflected on mixed Chinese trade data in which exports beat expectations but remained in contractionary territory.


• US equity futures are trading with slight gains and yields are lower across the curve. As a recap, US CPI data released Thursday showed headline and super core consumer prices printing above expectations, which some fear could see the Fed keeping policy 'higher-for-longer', but other analysts noted that the trend is still lower. There will be further inflation updates later today, when the University of Michigan releases its prelim consumer confidence survey, which contain inflation expectations; as a point of reference, the NY Fed survey this week saw year-ahead consumer inflation expectations rise to 3.7% Y/Y (prev. 3.6%), with the 3yr ahead expectation rise to 3% Y/Y (prev. 2.8%), though the longer-term 5yr gauge slipped to 2.8% (prev. 3%). Elsewhere, US banks will begin reporting earnings from today, with BLK, PNC, JPM, WFC, C all set to report before the market open; the theme will be higher rates, for longer, with large banks poised to write off more bad loans than they have since the early days of the pandemic.


• Equity sectors in Europe are a mixed bag with Energy names top of the leaderboard as crude prices continue to pick up in recent trade and WTI eyes a test of USD 85/bbl to the upside. To the downside, Healthcare names lag after Sartorius (-12%) cut FY revenue and EBITDA guidance alongside prelim 9M results, which is also acting on a drag of peers such as Merck (-4.3%) and Lonza (-1.7%). Elsewhere, Financial Services names are being dragged lower amid losses in St James Place (-13%) with the Co. rooted to the foot of the Stoxx 600 after news it is being pushed by the regulator to overhaul its fee structure to comply with the UK's new consumer duty. British American (-2.5%) shares are on the backfoot following news that the FDA is to ban the sales of Co's Vuse menthol e-cigarettes. Orsted (-5.7%) shares have been dealt a blow by the news that NY regulators denied requests from Orsted, Equinor, BP and other renewable developers to charge customers billions of dollars more under future power sale contracts. On a more positive footing, broker upgrades have proved to be supportive for the likes of Banca Monte dei Paschi (+2.7%), BPER (+3.3%), Morphosys (+6.2%), ADP (+1%), Remy Cointreau (+1.2%), Holcim (+1.6%), Swiss Re (+1.6%) and Zalando (+1.9%).

13 Oct 2023 - 09:15- Research Sheet- Source: Newsquawk