EUROPEAN EQUITY UPDATE: Stocks shrug off Monday blues following Friday’s strong showing on Wall St.

Analysis details (09:35)

• European equities (Eurostoxx 50 +0.9%) have kicked the week off on the front-foot as the region attempts to catch up with Friday’s afternoon gains on Wall Street. Fresh macro drivers within Europe remain light and therefore impetus has been gleaned from elsewhere. Equity sectors in Europe are higher across the board with the Travel & Leisure top of the leaderboard amid gains in sector-heavyweight Evolution (+5.6%) after its CEO purchased SEK 1mln of shares in the Co. Health Care names are also firmer with Novo Nordisk (+3.1%) benefitting from further data showing that its obesity drug has lowered the risk of death by 18%. Banking names have been supported by SocGen (+2%) following reporting by Bloomberg that the Co. is weighing the sale of its German finance unit as it aims to boost valuation, whilst BMPS (+7.5%) shares are higher after a rating upgrade by Fitch. Traders will want to be mindful of the 13-17th Dubai Airshow which will be of note for the likes of Airbus, Leonardo, Rolls-Royce, Safran and Thales. On which, Bloomberg suggests that Turkish Airlines is in talks with Airbus (+1.8%) and is reportedly discussing an order for its biggest order yet with 345 planes including A350s and A321 NEOs. Finally, Orpea (-5.1%) shares have been weighed on by a circa EUR 3.9 share capital increase, whilst Metro Bank (-1.7%) is lower after confirming it was added to the FCA’s financial crime watchlist in June.


• Goldman Sachs notes that over 75% of the companies it expects to include in its earnings tracker have now reported. Thus far, Stoxx 600 Q3 earnings have surprised 1% to the upside with GS highlighting that the market continues to penalize negative surprises and earnings have been revised down by about 1%, with commodities and defensives seeing the largest downgrades this year. Looking ahead to 2024, GS expects +7% EPS growth (after +3% in 2023) with the desk citing more favourable monetary conditions, rising real disposable incomes and less of a drag from higher energy prices. Elsewhere, as part of its European equity strategy, analysts at JP Morgan note that defensive have begun to trade better as of late and could catch a sustained bid as 1) bond yields peak, 2) there is a further decline in global out PMIs, 3) earnings of cyclical sectors continue to turn lower, 4) defensive valuations are no longer demanding. Within the sector, JPM has a preference for Utilities, Telecoms and Staples, whilst also noting it has recently upgraded Healthcare and Real Estate.


• Asia-Pac stocks were subdued and failed to sustain the early momentum from last Friday’s rally on Wall St with the region cautious ahead of this week’s key risk events including US CPI and Chinese activity data, the Biden-Xi meeting on the sidelines of the APEC summit and the US government shutdown deadline. ASX 200 (-0.4%) was lacklustre amid weakness in the largest weighted financials sector following earnings from ANZ Bank which posted a record FY cash profit but missed analysts’ forecasts and noted the external environment is likely to remain challenging. Nikkei 225 (Flat) was initially positive after softer-than-expected PPI data which printed its slowest pace of annual growth since February 2021 although the index eventually reversed its gains amid rising Japanese yields and a slew of earnings releases. Hang Seng (+1.6%) and Shanghai Comp. (+0.3%) began the session cautiously, though began to soar alongside strength in the Yuan towards the latter stages of the day. Whilst fresh fundamentals were thin, recent strength in the Crude complex and Copper futures is indicative of constructive sentiment in China.


• US equity futures (ES -0.2%, NQ -0.4%, RTY -0.3%) are trading on the back foot, with positive sentiment in the European session unable to assist equities stateside, as Moody’s changed its outlook on US ratings to negative and markets brace for a potential US government shutdown. The docket ahead is very thin, with only the Federal Budget the only data release of note, though the NY Fed Survey of Consumer Expectations will also be closely watched by traders. In terms of Fed speak, only Cook (Voter, Neutral) is due to give remarks at 13:50 GMT / 08:50 ET. The calendar for the week picks up from tomorrow, with markets eagerly waiting for US CPI, followed by Retail Sales on Wednesday. Amid this, it will be another busy week of Fed speak, with a total of nine members due to appear across the next five days. There are also a couple of non-data risk events this week including a meeting between Presidents Biden and Xi, and a potential government shutdown at the end of this week. Today Goldman Sachs released its US 2024 outlook and noted that it sees higher than consensus growth, inflation to fall and forecasts the Fed to cut rates from Q4’24. The bank adds that inflation challenges have largely been resolved, paving the way for a return to target, with the heaviest blows from monetary and fiscal tightening well behind us. "Core inflation has fallen sharply from its pandemic peak and should begin its final descent in 2024,".

13 Nov 2023 - 09:35- Research Sheet- Source: Newsquawk