EUROPEAN EQUITY UPDATE: Stocks slump as headwinds mount

Analysis details (09:25)

• European equities (Eurostoxx 50 -1.6%) trade very much on the backfoot following the declines observed yesterday on Wall Street with some desks citing the lack of breakthrough in US debt ceiling discussions as well as softness in the manufacturing PMI. Downside has also been triggered in Europe by hawkish macro impulses stemming from the latest UK inflation data which saw the headline rate fail to slow by as much as the market had hoped for and an unexpected increase in the core rate to 6.8% from 6.2%. Furthermore, concerns in the region have also stemmed from the recent poor performance in the luxury sector (more on which below).


• In APAC trade, stocks declined amid ongoing US debt ceiling discussions, while NZ markets were in focus after the RBNZ unexpectedly signalled the end of its tightening cycle. In Japan, the first positive Reuters Tankan reading for this year did little to spur risk appetite. China indices were lower after the White House spoke out against China's Micron (MU) ban, while a lawmaker called for the Commerce Department to add Changxin Memory Technologies to the entity list and called to ensure that no US export licenses are granted to firms operating in China which are used to backfill Micron.


• US equity futures are in the red, but not by as much as their European counterparts with the ES lower by around 0.2% and hovering just above the 4150 mark. Today’s agenda will centre around debt ceiling talks, while the FOMC meeting minutes will be looked at to see the extent to which a June pause was discussed in May.


• Equity sectors in Europe are lower across the board with underperformance in the Real Estate sector as UK homebuilders are hit by the rate implications from today’s UK CPI report; Redrow (-4%), Taylor Wimpey (-3.8%), Persimmon (-3.8%), Crest Nicholson (-3.2%), Barratt Developments (-2.8%). Elsewhere, Basic Resources have been weighed on by downside in underlying materials prices, whilst the luxury sector is enduring another session of losses; LVMH -1.5%, Kering -1.4%, Richemont -1.2%. There hasn’t been a clear catalyst behind yesterday's and today’s soft showing for luxury names, however, many analysts have begun to question the longevity of 2023’s upside for the sector with a Bloomberg piece noting that “attendees at a luxury conference in Paris organized by Morgan Stanley flagged a ‘relatively more subdued’ performance in the US”. Elsewhere, Marks & Spencer (+9.3%) is by far the best performing stock in the Stoxx 600 after solid FY results and announcing that it plans to restore its dividend in FY24.

24 May 2023 - 09:25- EquitiesEU Research- Source: Newsquawk