EUROPEAN EQUITY UPDATE: Stocks once again struggle for direction

Analysis details (09:18)

• European equities (Stoxx 600 -0.1%) once again trade with little in the way of firm direction in what has been an unexciting week for price action in the region with the Stoxx 600 on track to close the week out with marginal losses of around 0.3%. The region has been unable to capitalise on some of the upside seen yesterday on Wall Street, whereby tech stocks were able to benefit from the post-jobless claims dip in yields.


• In APAC, most indices traded higher, taking cues from Wall Street's gains. The Nikkei 225 led the gains in the region, with the index surpassing 32,000. The ASX 200 saw strength in the tech and mining sectors, but was limited by pressure in energy, following reports of a potential Iran-US interim deal on nuclear enrichment and oil exports (which was later denied). Hang Seng and Shanghai Composite were caught between the impulses of weaker-than-expected Chinese inflation data and the possibility of improved US-China relations.


• After the S&P 500 re-entered a technical bull market on Thursday, US equity futures are pausing for breath, currently trading lower in pre-market trade. The quiet docket should allow traders to begin focussing on next week’s key Tier 1 events, which include US CPI, FOMC, Retail Sales (and internationally, the ECB and the BoJ are also on the slate).


• The debate on whether we are seeing the beginning of a new bull market for US stocks, or a bear market rally, continues. Barclays' strategists note that the top five largest stocks have contributed the highest proportion of SPX returns in 2023 compared to the past 20 years. Barclays says that this concentration of returns is unusual, and stems from investors being underweight in key Tech names before the banking crisis-led "flight to Tech-as-Quality" in Q1. Now that these underweights have been mostly corrected, Barclays believes that positioning is taking a back seat to macro and earnings fundamentals. Barclays says the question remains whether these top stocks can live up to the high expectations surrounding their future earnings potential.


• Equity sectors in Europe are mixed with marginal outperformance seen in Basic Resources thanks to upside in underlying metals prices and an upgrade for the sector to overweight by Citi (who also downgraded Insurance to neutral. To the downside, Chemicals is the standout laggard following a profit warning from UK-listed Croda (-15%) with Jefferies noting that guidance from the Co. was 13% below consensus expectations; the Co. is also acting as a drag for the likes of Symrise (-3.9%), Givaudan (-2.9%) and BASF (-1.9%). In terms of stock specifics, as part of the CAC 40 reshuffle Edenred (+0.5%) are set to enter the index whilst Vivendi (-1.4%) are to be removed. In M&A activity, Network International Holdings (+5.8%) are to be acquired by Brookfield Business Partners for GBP 4.00/shr at a value of circa. GBP 2.2bln. Finally, Bunge is reportedly nearing a cash-and-stock deal to merge with Glencore's Viterra at a combined valuation of more than USD 30bln, according to Reuters sources.

09 Jun 2023 - 09:18- Fixed IncomeData- Source: Newsquawk