EUROPEAN EQUITY UPDATE: Stocks remain resilient as EZ Flash PMIs dip into contraction

Analysis details (10:21)

Stocks in Europe started the trading day relatively flat with a modest downside bias, but have since nursed those losses after a short period of directionless trade, with the region resilient to sub-par Flash PMIs from the EZ which may translate to less hawkish future moves by the ECB. Delving deeper into the PMIs, French manufacturing saw a surprise contraction whilst all three German metrics unexpectedly printed below the 50 threshold. The overall themes of the PMIs have been slowing/contracting growth, cooling but elevated inflation, and overall sentiment declining. Commentary for the EZ-wide release suggested Q3 GDP will contract 0.1% Q/Q, whilst “forward-looking indicators hint at worse to come in the months ahead.”, whilst S&P global warns that “producers are reporting that weaker than expected sales have led to an unprecedented rise in unsold stock. Production will likely need to be reduced as companies adapt to this weaker demand environment, in turn widely linked to rising prices.”, and “the boost to demand [in the services sector] from the reopening of the economy has faded and growth is now at a near standstill”. Equities have withstood the downbeat data whilst US futures remain subdued in horizontal trade – with the NQ (-0.6%) narrowly lagging vs the ES (-0.4%) following yesterday’s tech-led Wall Street rally. Meanwhile, the weekly Bank of America flow show (in the week to July 20th) highlights pessimism among investors that “Everyone is bearish, but no one has sold,” according to the strategists, with the bank warning that stocks will likely see more declines. In Europe, indices are posting modest gains across the board (Euro Stoxx 50 +0.1%; Stoxx 600 +0.6%). Sectors are mostly in the green with Real Estate and Travel & Leisure leading the charge, whilst Banks, Basic Resources, and Autos & Part stand as the laggards. Overall, the sectoral picture does not portray a clear theme or bias. In terms of individual movers, Delivery Hero (+17.6%) soared after it released prelim figures which showed a rise in revenue for Q2, which lead to an improvement in margin forecasts. The move has lifted peer Just Eat Takeaway (+12.0%) in tandem, which in turn helps the AEX (+0.6%) narrowly outperform the region. Elsewhere, Banco Santander (+1.2%) outperforms in the banking space in the face of the yield-induced downside as the Co. is no longer interested in purchasing Banamex - Citigroup's retail bank in Mexico - prior guidance suggested the sale could be worth up to EUR 9bln. Uniper (+6.3%) rises as the German government has almost finalised the main parameters of the Co’s rescue package. Finally, some earnings-related movers include Norsk Hydro (+5.6%), Ubisoft (+0.2%), SSAB (-1.7%), Beazley (+9.0%), and Danske Bank (-2.6%). 

22 Jul 2022 - 10:21- EquitiesResearch Sheet- Source: Newsquawk

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