EUROPEAN EQUITY UPDATE: Stocks set to close the week out on the front foot

Analysis details (09:25)

• European equities (Stoxx 600 +0.4%) trade marginally firmer with the Stoxx 600 on track to close the week out with gains of around 1.2%. The main macro focus for the region this week has been be on the ECB, however, given that the announcement had a potentially more hawkish-than-expected lean (on account of the upgrades to headline and core inflation forecasts) it is possible that upside for equities has been more a by-product of gains in the US as the S&P 500 continues to climb higher with the index now above 4400. Goldman Sachs has upgraded its year-end target for the Stoxx 600 to 500 from 475 (vs. current price of 466; implies 7.3% upside).


• Asia-Pac stocks traded higher following the gains on Wall St. ASX 200 was positive with the gains led by early strength in energy and utilities. Nikkei 225 initially declined amid cautiousness heading into the BoJ policy decision but then recovered after the BoJ maintained its ultra-easy policy settings. Hang Seng and Shanghai Comp. were underpinned amid anticipation of further support measures. However, gains were contained in the mainland amid lingering frictions with the EU to ban Huawei and ZTE equipment from internal Commission networks and ahead of US Secretary of State Blinken’s visit to China, whereby expectations have been tempered beforehand with the US side not expecting any breakthrough in relations but hopes the trip will reduce the risk of miscalculation with China.


• US equity futures are largely unchanged after what has been another bullish week for stocks as the S&P 500 and Nasdaq extended YTD gains to 15.3% and 31.7% respectively. The broader macro debate in the US continues to be dominated by the Fed as markets continue to price in the likelihood of a 25bps hike next month, whilst traders are also mindful of recent data points including yesterday’s above-consensus weekly claims figure. For the upcoming session (quad-witching day), the main data focus will be on the Uni. of Michigan release with particular attention on the 1yr and 5yr inflation projections. Today will also present the first opportunity for Fed speakers to speak following the blackout period with voters Waller and Barkin due on the slate and the possibility of unscheduled remarks as policymakers aim to finesse messaging following Wednesday’s announcement.


• The latest BofA Flow Show revealed that global bond funds received USD 22.3bln of inflows in the week to June 14th with the regional breakdown showing USD 23.8bln into US funds (inflows for the past 3 weeks), USD 2.4bln out of Europe (14th week of outflows), USD 2.2bln into Japan (2nd week of inflows). Furthermore, tech has now seen USD 19bln of inflows in the past 8 weeks which is the strongest level of momentum since March 2021. Elsewhere, BofA sees a “max SPX 100-150 points upside vs 300 points downside between now & Labor Day”, adding that it is “not convinced we at start of brand, new shiny bull market...still feels more like combo of 2000 or 2008, big rally before big collapse”. Analysts at Citi are of the view that “narrowing leadership alone is not a reason to sell the market; stocks trade higher on average after markets narrow, though volatility also rises”. Citi adds that “a sharp narrowing in S&P 500 breadth, even when Stoxx 600 leadership remains relatively broad, has historically favoured US stocks”.


• Equity sectors in Europe are mostly firmer with Consumer Products & Services, Utilities and Healthcare leading peers whilst Construction and Basis Resource names lag. In terms of sectoral views, Goldman Sachs has upgraded retailers to overweight from underweight. In terms of stock specifics, ITV (-0.5%) has confirmed that it is exploring a potential acquisition of All3Media. Tesco (-0.5%) reported LFL sales growth of 9% during its Q1 trading update whilst noting that after delivering a strong start to FY23, the Co. is well positioned for the months ahead. Travis Perkins (-4.9%) is a standout laggard after flagging challenging market conditions, whilst Rheinmetall (+3.3%) shares are near the top of the Stoxx 600 after its CEO stated the Co. expects to reach an ammunition deal worth billions of Euros with the German government in the coming weeks.

16 Jun 2023 - 09:25- Research Sheet- Source: Newsquawk