EUROPEAN EQUITY UPDATE: Stocks set to close the week out where they began

Analysis details (09:23)

• European equities (Stoxx 600 +0.4%) trade on a firmer footing with the Stoxx 600 on track to see the week out exactly where it started. Macro focus in the region for the week has primarily be on the barrage of ECB speakers that have hit the wires, however, their comments have had little sway on the broader tape given that they have largely echoed remarks from Lagarde. Additionally, source reporting over a potential move in September has largely been discredited by the market given the patchy level of forecasting we have seen from the Bank in this current cycle.


• The handover from the APAC region was a mixed one with Japanese shares outperforming on account of domestic earnings results. China shares were softer as participants digested weaker-than-expected Chinese loans and financing data.


• US equity futures (ES +0.2 %, NQ +0.1%, RTY +0.3%) are trading higher, and the ES is on course to post a small weekly gain after data this week showed headline CPI continues to cool and traders bet that the Fed will pivot towards rate cuts this year; but, the price action ultimately is a continuation of the horizontal range we have seen since April, with investors still anxious over the outcome of fiscal talks in Washington, the health of regional banks, and while Fed officials have this week been impressing that they are still preparing to raise rates. Today’s focus was going to be on further debt ceiling talks, but a meeting between US President Biden and Congressional leaders has been pushed to next week. Instead, the focus will be on Fedspeak (Jefferson, Bullard, Daly) and data (prelim. University of Michigan sentiment), while any commentary on the debt ceiling and regional banks will continue to influence price action.


• Analysts at Citi note that with the Fed hiking cycle likely coming to an end as the ECB continues to tighten policy, European equities move sideways to slightly up after the last Fed rate hike. Citi states that defensives tend to outperform cyclicals and on a sector level, health care and tech tend to outperform, adding that this is consistent with the quality/defensive tilt in its European sector allocation.


• Equity sectors in Europe are mostly constructive with clear outperformance in Consumers Products and Services on account of Richemont’s (+6.1%) better-than-expected FY results which saw the Co. state that it expects further strong demand ahead; Kering (+1.8%) and LVMH (+1%) are higher in sympathy. To the downside, Real Estate and Auto names are the only sectors in the red. Scor (+8.4%) is the best performing stock in the Stoxx 600 on account of Q1 results and announcing that it will unveil a new strategic plan later this month. In contrast, THG (-10%) is enduring heavy losses after news that it has terminated takeover discussions with Apollo.

12 May 2023 - 09:23- Research Sheet- Source: Newsquawk