EUROPEAN EQUITY UPDATE: Stocks slump as hawkish bets continue to mount

Analysis details (09:42)

Stocks in the region hold a negative bias (Stoxx 600 -0.6%) with the Stoxx 600 on track to close the week out with losses of around 0.7%. The FTSE MIB (-1.4%) is one of the region’s underperformers as the IT/GE 10yr spread continues to widen (currently 224bps vs. 197bps at the start of the week) as a continued hawkish repricing for the ECB hampers the performance of Italian debt. It is worth noting that ahead of the Italian election, analysts at UBS note “when the spread is between 200-300bp, the FTSE MIB’s average monthly performance is circa. -0.3%”. In a more severe scenario, UBS lists Fineco Bank (FBK IM), Moncler (MONC IM) and Unipol (UNI IM) as the most exposed if the BTP-Bund surpasses 300bp. Stateside, futures are also in the red (ES -0.8%, NQ -1.1%, RTY -1.0%) with Fed speakers continuing to reaffirm their hawkish leanings in the wake of a “dovishly-perceived” FOMC minutes release on Wednesday. To recap, 2022 voter George stated that an easing of financial conditions may have been based on optimism that the Fed would slow down but that does not reflect how the Fed is thinking about policy. The latest BofA Flow Show noted that global stock funds had inflows of USD 7.9bln in the week to Wednesday 17th, whereby inflows were driven by optimism around a Fed policy pivot. BofA also remarked that bear market rallies were always “narrow,” noting that that the 17% advance in S&P 500, where just four stocks -- Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN) and Tesla (TSLA) -- have contributed 30% of the gains. Sectors in Europe are predominantly lower with notable underperformance in the Travel & Leisure sector amid losses in airline names (easyJet -3.9%, Deutsche Lufthansa -3.3% and IAG -2.8%). Elsewhere, Real Estate names are also suffering, whilst to the upside, Healthcare and Energy names are the lone sectors in the green with the former partially supported by a modest pick-up in GSK (+0.7%) shares. In terms of individual movers, Just Eat Takeaway.com (+25.4%) is the clear outperformer in the Stoxx 600 following news that it is to sell Ifood Stax for a cash consideration of up to EUR 1.8bln. Elsewhere, Kingspan (+7.5%) shares have been supported by H1 results which saw revenues reach EUR 4bln, whilst Sonova (+2.4%) has been lifted after announcing an acceleration of direct consumer access in the Chinese market.

19 Aug 2022 - 09:42- - Source: Newsquawk