EUROPEAN EQUITY UPDATE: Stocks slump alongside scorching Spanish CPI

Analysis details (09:31)

European stocks (Eurostoxx 50 -0.7%) have kicked the week off on the backfoot in what is a week packed full of key risk events, including Fed, ECB and BoE rate decisions and US NFP for January. Sentiment was dampened at the European cash open following Spanish inflation metrics which saw an unexpected jump in the Y/Y rate to 5.8% from 5.5% vs. Exp. 4.7%. This will likely have little immediate follow-through to this week’s ECB decision, however, if this is a trend which is replicated in the Eurozone-wide release, this could see market pricing become more aggressive towards what happens beyond February. The handover from the APAC region was mixed as mainland Chinese participants returned to the fray from the Lunar New Year holiday with underperformance seen in the Hang Seng following losses of nearly 5% in the Hang Seng Tech Index. Stateside, US futures (ES -0.7%, NQ -1.1%, RTY -0.8%) trade with losses across the board with the NQ lagging peers. Analysts have been noting that the ES may struggle to build above 4,140 (a valuation-based level premised on a forward EPS expectation of USD 230 EPS this year, on an 18x multiple), and as the index got closer to that zone (high from last week was around 4,110), sellers emerged overnight. This week is another busy one for US earnings with Meta Platforms (META), Apple (AAPL), Amazon (AMZN) and Alphabet (GOOG) all due to report. Barclays upgraded the European banking sector to overweight from neutral on the basis that although investors are confident that the sector should see earnings upgrades, with scope for valuation to re-rate, this is not fully reflected in near-term positioning. Elsewhere, JPM is of the view that “in Q1, initially the market will keep moving higher, given good seasonals, light positioning and re-risking drive, but also that ultimately one should end up fading this up move”. JPM adds that stocks could hit an air pocket of weaker earnings and activity as we move through Q2 and Q3. Sectors in Europe hold a mostly negative bias with tech the standout laggard amid losses in chip names. This comes after the US, Netherlands, and Japan reached an agreement on chipmaking export controls. In terms of individual updates, Philips (+6.6%) is one of the best performers in the Stoxx 600 after better-than-expected earnings and the announcement of another 6k job cuts. Renault (-2.6%) has agreed to cut its stake in partner Nissan (7201 JT) to 15% from just over 43% as part of a deal to rebalance the alliance. Shell (Unch.) announced that it is to combine O&G and LNG divisions in a move which could lead to job reductions. Unilever (-0.9%) has named Hein Schumacher as its new CEO. Finally, Commerzbank (+1.2%) are firmer on the session after prelim. 20222 results and now meeting criteria for a return to the DAX 40.

30 Jan 2023 - 09:31- Research Sheet- Source: Newsquawk