EUROPEAN EQUITY UPDATE: Stocks recover from earlier lows as earning season intensifies

Analysis details (10:32)

European equities have seen a choppy mid-week session thus far as stocks and futures initially succumbed to risk aversion following a downbeat Wall Street lead, alongside losses across most of APAC. Markets overnight reacted to Russia halting gas flows to Poland and Bulgaria – with fears of a halt to other European nations. That being said, it is difficult to assign a narrative in the current markets amid the backdrop of earnings and ahead of the Fed and BoE next week. However, the mood across stocks turned for the better shortly after the downside seen at the cash open – with the recovery coinciding with commentary from the European Commission President on the aforementioned Gazprom gas flow halt, suggesting, “We are prepared for this scenario. We are mapping out our coordinated EU response.” US equity futures see slightly more pronounced gains vs Europe following yesterday’s hefty losses – particularly across tech. Notable US pre-market movers include Microsoft (+5.3%) and Alphabet (-3.0%) post-earnings, and Tesla (+2.5%) recovering after shedding USD 125bln in market cap yesterday. Back in Europe, the grind higher across the European bourses continues (Euro Stoxx 50 +0.3%; Stoxx 600 +0.4%) – with relatively broad-based gains seen across the majors. Strategists at Morgan Stanley believe that the UK is trading close to the overbought region but have maintained an overweight rating on FTSE 100 firms given cheap valuation and strong EPS momentum relative to peers. MS also notes that Swiss stocks are trading near overbought but are seemingly vulnerable to cyclical rebounds, whilst French companies “don’t appear ‘overly attractive’ given the relative performance is still near the top of the 5-year range”. Sector performance in Europe is mostly firmer but with no clear theme. Basic Resources is the clear outperformer despite little action in the underlying base metals markets and with UK miners cheering the recent slide in the GBP. The downside, meanwhile, sees Media, Retail, and Optimised Personal Goods. Individual movers are largely earnings-related: Deutsche Bank (-2.8%) reported better than expected Q1 profits, though guidance was reaffirmed amid Ukraine uncertainty. Credit Suisse (-0.4%) reported a quarterly loss and management shake-up. Commerzbank's (+2.7%) net profits more than doubled. Despite inflation, Lloyds (+1.8%) profits came in above expectations; Handelsbanken (+5%) profits rose on higher NII. Away from banks, Mercedes-Benz (+3.0%) is underpinned by higher metrics, but the automaker warned about the outlook. GlaxoSmithKline's (+1.1%) results exceeded expectations, and it said it was on track to demerge its consumer unit in July. Finally, Thales (-1.0%) slipped on reports of a probe in the firm regarding the arms deal with Malaysia in 2022.

27 Apr 2022 - 10:32- EquitiesResearch Sheet- Source: Newsquawk