EUROPEAN EQUITY UPDATE: Stocks slump following US and APAC selling

Analysis details (09:37)

• European equities (Eurostoxx 50 -0.6%) trade on the backfoot after succumbing to the selling pressure seen Stateside and during APAC trade (which is detailed below). Looking closer to home, things are particularly quiet with nothing incremental on a macro basis. We heard from ECB’s Kazaks earlier in the session who noted that he would need to see the latest ECB staff economic projections before committing to any further hikes, adding that any further hikes would be small; a long way of saying that the Bank remains in data-dependency mode and is in close proximity to the terminal rate. Given that this is very much part of the markets’ thinking already, if things remain this quiet on the news front for Europe, market direction will likely be gleaned from elsewhere.


• Asia-Pac stocks mostly suffered another day of selling and followed suit to the losses on Wall St as yields continued to edge higher after the FOMC Minutes. ASX 200 (-0.7%) retreated as participants digested a slew of earnings releases and disappointing jobs data which showed a surprise contraction in the headline employment change and a larger-than-expected uptick in the unemployment rate to 3.7% from 3.5%. Nikkei 225 (-0.6%) declined after soft data releases including the miss on machinery orders and although the declines in exports and imports weren’t as bad as feared, exports printed in contraction territory for the first time in 29 months. Hang Seng (-0.2%) and Shanghai Comp. (+0.4%) were pressured at the open which saw the Hong Kong benchmark enter bear market territory after declining more than 20% from its January high amid earnings-related disappointment following results from Tencent and JD.com, although Chinese markets then recovered the losses following another firm liquidity injection by the central bank and recent economic pledges by Premier Li, a move which pushed the Shanghai Comp. into the green.


• US equities (ES +0.1%, NQ +0.2% & RTY Unch.) are flat/modestly firmer in early morning trade, following risk-off trade seen at yesterday's close with the FOMC Minutes unable to cap the negativity. Overall, the minutes were fairly balanced, albeit with a slightly hawkish tilt, given most participants saw significant upside risks to inflation which could require further tightening, although a number were warning of accidentally tightening too much, both of which have been noted among Fed commentary in recent weeks. Participants also said that a gradual slowdown in economic activity appeared to be happening, and they still see below-trend growth and a softer labour market as necessary to restoring economic balance. Today the markets will await Initial Jobless Claims and the Philadelphia Fed Business Index, which will give more insight into the resilience of the US economy. On the earnings front, traders expect Walmart and Applied Materials to report in pre-market trade.


• Equity sectors in Europe are mostly lower with Industrial Goods & Services names bottom of the pile amid losses in BAE Systems (-4.7%) after the Co. confirmed the acquisition of the Ball Aerospace business from Ball Corporation (BALL) for USD 5.55bln in cash. Elsewhere, other laggards include Travel & Leisure and Construction & Materials, whilst to the upside, Basic Materials names outperform peers after a few bruising sessions of losses. In terms of stock specific updates, payments giant Adyen (-22.2%) is the main standout after H1 earnings were hampered by inflation and a hiring spree; something which the Co. has continued to defend. Also acting as a drag on the AEX (-1.2%) is Aegon after H1 results saw the Co. Report a EUR 199mln net loss. Finally, Danish-listed Co.’s GN Store Nord (-8.8%) and Coloplast (-5.8%) sit near the foot of the Stoxx 600 after poorly received earnings.

17 Aug 2023 - 09:37- Research Sheet- Source: Newsquawk