EUROPEAN EQUITY UPDATE: Stocks rout continues, soft data weighs on UK retailers

Analysis details (09:21)

• Stocks in Europe (Stoxx 600 -0.8%) are once again on the backfoot as the downtrend in the equity space continues with Stoxx 600 on track to close the week out with losses of around 2.5%. Selling pressure in stocks picked up after the open without much in the way of fresh drivers behind the move and as such, appears to be a case of “more of the same” with regards to price action. In terms of macro developments, this morning’s UK retail sales for July were a disappointment as wet weather dampened spending. However, this has done little to impact pricing for the BoE’s September policy announcement whereby a 25bps hike by the MPC is widely expected. Looking elsewhere, today’s release of final Eurozone CPI metrics is unlikely to shift the dial with market participants more mindful of the flash August metrics due at the end of the month. Also of note for the ECB, Chief Economist Lane will be appearing on an ECB podcast this morning.


• Asia-Pac stocks traded mostly lower after the early reprieve from the recent global rout petered out. ASX 200 (Unch.) was kept afloat but with price action rangebound amid a lack of pertinent catalysts and with gains in real estate and the commodity-related sectors counterbalanced by losses in tech, telecoms and consumer stocks. Nikkei 225 (-0.4%) was choppy and briefly clawed back its opening losses as bargain buying kicked in and following the latest inflation data from Japan which printed in line with expectations. Hang Seng (-2.1%, ended the session in bear market territory) and Shanghai Comp. (-1%) were lower with pressure seen in tech names and as property concerns lingered after state-owned developers warned of widespread losses, while Evergrande Real Estate Group filed for Chapter 15 bankruptcy in New York to protect US assets as it works on a restructuring of debts. Participants also await the results of today’s Hang Seng index review, while the losses in the mainland stemmed after the PBoC’s liquidity efforts resulted in the largest weekly net injection since March.


• US equity futures (ES -0.1%, NQ -0.2%, RTY -0.1%) are trading on the back foot as sentiment continues to slump, extending the downward price action seen yesterday. Some analysts note that the recent uptick in yields has made equities too expensive and this may have been weighing on the market. Looking ahead, the calendar is thin by way of data releases, so the markets will turn their attention to earnings from Deere and Estee Lauder.


• In this week's BofA flow show report, Stocks saw USD 2.1bln outflows, bonds USD 0.3bln inflows whilst cash attracted USD 28.1bln. Taking a look at global movements, US and Europe equity funds saw outflows of USD 5.2bln (2nd week of outflows) and USD 1.3bln (23rd week of outflows) respectively, whilst Japan saw inflows of USD 0.4bln (3rd week of inflows). In terms of sector performance, Tech drew USD 2bln and Energy USD 0.3bln, whilst Financials saw the largest outflows of USD 0.8bln. Finally, sentiment seemingly improved with the BofA Bull & Bear indicator ticking up to 4.2 from 4.1.


• Equity sectors in Europe are lower across the board with underperformance in retail names with some of the UK names such as Marks & Spencer (-1.8%) and Next (-1.4%) on the backfoot following disappointing UK retail sales. Elsewhere, other lagging sectors include Basic Resources and Consumer Products and Services. Areas of interest today have included certain French stocks amid reporting by Les Echos that France is pressing ahead with plans for higher taxes on airline tickets and operators of highways and airports to raise USD 110mln; this has subsequently weighed on the likes of ADP (-2.8%), Air France (-2.6%, Vinci (-2.5%) and duty-free name Dufry (-3.3%). Italian Banks have failed to benefit from reporting in Italian press that the ECB is to write a letter to Italy to object to the Italian government's windfall tax on their profits. Finally, it's been another miserable session for Adyen (-5%) following yesterday’s post-earnings slump which saw shares close lower by 40%.

18 Aug 2023 - 09:21- EquitiesData- Source: Newsquawk