EUROPEAN EQUITY UPDATE: Stocks slip as Friday's Wall Street losses and China woes compound ahead of a busy earnings week

Analysis details (10:23)

European cash markets kicked off the week lower across the board (Euro Stoxx 50 -2.2%; Stoxx 600 -1.9%) following the heavy losses on Wall St on Friday, which saw the S&P 500 post its worst performance since March 7th. The APAC handover was also weak, with Hang Seng and Shanghai Comp underperforming on the COVID situation after daily deaths in Shanghai rose again, whilst Beijing is concerned about its rising case count. The losses across futures were exacerbated alongside further downticks in Chinese markets heading into the European – with the CSI 300 posting losses of almost 5%. Updates on the Ukraine situation have also skewed negatively, with a report in the FT suggesting that Russian President Putin has dropped hopes for a Ukraine deal and shifted to a land-grab strategy. Therefore, prospects for a Putin-Zelensky meeting are looking dim. The fighting on the ground continues, but it remains whether Russia can retain control or exert political influence over certain territories. Furthermore, this week is an especially busy one on the earnings front with Microsoft, Alphabet, Meta, Apple, Amazon and Twitter all due to report – accounting for over 20% of the S&P 500 - whilst the earnings slate also ramps up in Europe. In Europe, equities continue to decline with a relatively broad-based performance across the majors. The CAC 40 (-2.6%) defied analyst expectations from the French elections, whereby French President Macron won another five-year term - Jefferies upgraded its rating on French equities to "bullish" following the victory of President Macron. Sectors are lower across the board with a clear defensive tilt: Energy and Basic Resources sit at the bottom of the bunch amid hefty downside in underlying commodities – hurt by the demand effects of China's COVID situation. Analysts at JPM say cyclicals are far from priced for perfection and are trading at past recessionary relative-valuation lows – "cyclicals' valuations are not demanding, with the group, excluding tech, trading at 25% discount to defensives". However, the bank warns that defensives would be the hiding place in the case of a recession. On this note, the morning saw the German Ifo top forecasts across all metrics, with the economists not currently expecting German recessions in Q1 or Q2. Still, Ifo noted that 75% of respondents reportedly warned supply chain issues and price increases. As a reminder, ahead of EZ flash CPI this week, Flash PMIs last week warned "higher costs were passed on to customers, sending a worrying signal that inflationary pressures continue to build." Over to individual movers: Ted Baker (-0.4%) has succumbed to the broader risk aversion despite pre-market reports that Reebok-owner Authentic Brands is exploring a takeover bid for Ted Baker, according to Sky News sources.Meanwhile, the morning saw a couple of investor updates whereby for Just Eat Takeaway (-3.1%) - Cat Rock Capital (who hold a 6.9% stake) has issued a letter to Co. shareholders calling on other investors to vote against the re-election of its CFO, according to the FT. For Vodafone (-1.2%), investors are urging the Co. to speed up dealmaking to improve performance. Furthermore, Credit Suisse (-3.5%) shareholder Norway's Sovereign Wealth Fund (who holds a 1.3% stake in the Co.) has backed calls for a special audit at the Co, according to the FT. Over to corporate updates Vivendi (-0.3%) and Philips (-10%) reported earnings. In terms of defence news, Rheinmetall (+0.6%) has asked the German Defence ministry for approval to export 100 old Marder Infantry Fighting Vehicles (IFV) to Ukraine, according to a defence source cited by Reuters. Finally, state-side, Twitter (+1.1% pre-market) is reportedly re-examining Elon Musk's bid and be more receptive to a deal with the sides meeting on Sunday to discuss the proposal. It was separately reported that Twitter is facing increasing shareholder pressure to negotiate with Elon Musk in his takeover bid. The Co. is in talks with Elon Musk in which a potential deal could be made as early as this week, according to WSJ.

25 Apr 2022 - 10:23- EquitiesEconomic Commentary- Source: Newsquawk