EUROPEAN EQUITY UPDATE: Stocks soft after yesterday’s jolt higher

Analysis details (09:35)

• European equities (Eurostoxx 50 -0.2%) trade predominantly in marginal negative territory with today’s macro narrative dominated by regional CPI prints. German State CPIs have been a mixed bag and therefore it is hard to draw much in the way of conclusions ahead of the mainland figure at 13:00BST which looks for Y/Y CPI to fall to 6.0% from 6.2% and M/M print at 0.3% vs. prev. 0.3%. Spanish data saw Y/Y CPI in August rise to 2.6% from 2.3% as expected with the M/M change at 0.5% vs. Exp. 0.4% and a previous of 0.2%; ING suggests that the core inflation (6.1%) was likely kept high due to the strong tourism sector. There are still further updates yet to come from Germany (today), France and Italy (both Thursday) ahead of the Eurozone-wide metric tomorrow. However, market pricing is slowly leaning towards the possibility of a September hike after PMI data lowered such odds last week. This comes as, despite the trajectory for Eurozone inflation likely set to work in favour of the ECB, comments from ECB officials this week have done little to suggest that a pause is forthcoming at this stage.


• APAC stocks traded positively across the board following the JOLTS-induced gains seen on Wall Street which ultimately led to more dovish Fed market pricing. ASX 200 (+1.3%) saw its upside driven by the Industrial sector and closely followed by its gold sector, with a further boost seen from the softer-than-expected Aussie CPI data. Nikkei 225 (+0.4%) saw its machinery sector leading the gains, although the index’s upside is hampered by the recent gains in the JPY. Hang Seng (+0.1%) and Shanghai Comp (+0.2%) both opened with gains as the region conformed to the global risk appetite, despite comments from US Commerce Secretary Raimondo who suggested US firms complain that China is “un-investable”. The Chip Sector was also in focus following reports from SCMP that China is exploring ways to make its own AI memory chips despite US sanctions. Sources added that ChangXin Memory Technologies, is the country’s best hope for specialist chips, but it may take up to four years to deliver products. In other news, according to Yicai the PBoC held a meeting with private firms to promote their financing, as the country continues its efforts to boost growth.


• US equity futures (ES -0.1%, NQ -0.2%, RTY Unch.) are trading slightly weaker, paring back the strength seen in yesterday's session following the dovish JOLTS data. The number showed a surprise decrease in job openings, with the figure falling to 8.83mln (prev. 9.58mln, exp. 9.47mln). With Fed’s Powell bringing attention to the labour market at the latest Jackson Hole Symposium, WSJ's Fedwatcher Timiraos says that it is a "JOLTS report the Fed will be pleased to see". Oxford Economics added that the data "supports our forecast that the Fed has reached the terminal policy rate” and the NFP report at the end of the week will provide further evidence of a cooling labour market. Another notable data point was Consumer Confidence, which ticked down to 106.1 (exp. 116.0), reflecting less confidence about future business conditions, job availability, and incomes. Looking at today's docket, another jobs data release comes by way of ADP National Employment, which is expected to drop to 195k (prev. 324k), though analysts note that the ADP recently has had little predictive power when it comes to forecasting NFP data. Additionally, markets will await Wholesale Inventories, Advanced Goods Trade Balance, GDP Estimates and the Fed’s preferred measure of inflation, PCE Prices (Prelim). Lastly, there are a couple of notable earnings to keep note of, including Salesforce and CrowdStrike.


• Barclays notes that the August pull-back was “more due to buyers' strike than a broad de-risking”. The desk adds that “positioning hasn't reduced much, but rotation to cash, bonds and Defensives means caution”. Furthermore as the soft landing narrative in the US treads the fine line between peak rates and a weaker consumer, markets do not seem positioned for good news in Europe or China. Elsewhere, analysts at Citi note that “bullishness across all markets has faded strongly in August and this has brought net positioning much closer to neutral”. The desk adds that European markets are neutral to slightly bearish and form the bottom of the bullishness ranking. That said it suggests that early bullish flows could make a turn around as observed in “futures for US and China, but in ETF flows for Europe”.


• Equity sectors in Europe have a positive bias with Banking and Insurance names outperforming peers. To the downside, Utilities are the clear laggard with Orsted (-17.1%) bottom of the Stoxx 600 after taking a USD 730mln impairment on its US portfolio. This negative update has also dealt a blow to other names with renewables exposure such as Vestas Wind Systems (-3.9%), RWE (-3.4%), Siemens Energy (-3%) and E.ON (-2.1%). Elsewhere, Brunello Cucinelli (+5.8%) is top of the Stoxx 600 following H1 results and a broker upgrade at Kepler Cheuvreux, whilst UK-listed Prudential (+4%) has also managed to benefit from encouraging first half results. Finally, Delivery Hero (-5.8%) is enduring a session of losses as H1 results underwhelmed and have subsequently acted as a drag on the likes of Just Eat Takeaway.com (-2.5%)

30 Aug 2023 - 09:35- Research Sheet- Source: Newswires