EUROPEAN EQUITY UPDATE: Stocks shrug off opening losses as summer trade ensues

Analysis details (09:28)

• European equities (Eurostoxx 50 +0.4%) trade on the front-foot after shrugging off opening losses which were in part a by-product of Chinese-related concerns overnight (see below for more details). Note, there was no obvious catalyst behind the rally seen after the cash open. In terms of European-specific developments, things have been exceptionally quiet for the region with markets seemingly very much in summer-mode. Looking ahead for the week, major macro data releases are few and far between for the Eurozone. However, for the UK, this week’s docket contains Jobs data (Tue), Inflation (Wed) and Retail Sales (Fri) with the former two set to be key inputs into the BoE’s thinking ahead of the September 21st meeting which currently prices a 25bps hike at around 80%.


• Asia-Pac stocks were pressured as ongoing Chinese economic woes and developer default concerns sapped risk appetite ahead of upcoming notable events including several key data releases worldwide and the latest FOMC minutes. ASX 200 (-0.9%) was lower amid headwinds from Australia’s largest trading partner and with participants inundated by a slew of earnings releases. Nikkei 225 (-0.2%) initially swung between gains and losses in which early advances on the back of a weaker currency were wiped out as the index succumbed to the broad risk-off mood. Hang Seng (-1.4%) and Shanghai Comp. (-0.4%) declined with the Hong Kong benchmark the worst hit amid heavy losses in tech and the property industry owing to default concerns after Country Garden Holdings suspended trading of 11 onshore bonds and Sino-Ocean Group announced the suspension of trading of 6% guaranteed notes due 2024. China’s recent lending data also added to the ongoing slowdown fears after New Yuan Loans slumped by nearly 90% to the lowest since 2009, while participants are also bracing for tomorrow’s Chinese activity data and this week’s upcoming earnings releases from large tech names including Tencent and JD.com.


• US equity futures (ES +0.3%, NQ +0.5%, RTY +0.2%) are trading slightly firmer ahead of a catalyst-thin docket. Friday’s session saw a slightly hotter-than-expected PPI print, which led the markets to finish lower/flat on the day. Tim Duy notes that the “report provides some warning signs” and suggests that whilst disinflationary forces pass through, the Fed will have to turn its attention to curtailing supply-side inflation, citing the rise in ISM prices paid for July as evidence. The docket for today is empty by way of both data releases and Fed speak, so the focus may be across the border to Canada, where the BoC is set to release its SLOOS report. Back to the US, the next print of note will be tomorrow's Retail Sales, which are expected to rise to 0.4% M/M from the prior 0.2%, supported by the rise in energy prices. Additionally, traders will look out for the FOMC Minutes for July, which are unlikely to curb expectations that Fed will keep rates at 5.25-5.50% for the foreseeable future. Goldman Sachs expects the Fed to begin cutting rates by the end of June 2024 at a gradual pace, which it anticipates to likely be once per quarter. Finally, of note for automakers, Tesla cut the prices of some of its vehicles in China, further adding to Chinese growth woes.


• Equity sectors in Europe have a slight positive tilt with marginal outperformance in Telecoms, Banks and Retail names, whilst Energy and Basic Resource names lag on account of Chinese-inspired weakness in underlying commodity prices. In terms of stock specific updates, Philips (+5.1%) is the best performer in the Stoxx 600 after Exor (-0.4%) bought a 15% stake in the Co. for USD 2.8bln. Watches of Switzerland (+4.6%) has benefited from a broker upgrade at Kepler Cheuvreux, whilst Telecom Italia (+2.5%) are benefitting from comments from Vivendi which has said it sees "positive news" over a preliminary deal for Italy's stake of up to 20% in Telecom Italia's Network, according to sources close to the Co cited by Reuters. To the downside, Fresenius Medical Care (-1.4%) shares have been weighed on after being downgraded at UBS. Finally, one story to watch includes an update from the FT which notes that retail investors are planning a lawsuit challenging the UBS takeover of Credit Suisse.

14 Aug 2023 - 09:28- Research Sheet- Source: Newsquawk