EUROPEAN EQUITY UPDATE: Stocks soft as Europe digests a pullback in EZ Composite PMI

Analysis details (09:40)

• European equities (Eurostoxx 50 -0.4%) trade with modest losses with focus for the region largely on this morning’s batch of PMI data. Markets initially digested a mixed showing from France and Germany in which the former disappointed on services and the latter on manufacturing. The Eurozone-wide print saw further softness in the manufacturing sector (44.6 vs. exp. 46.0, prev. 45.8), whilst services exceeded expectations but cooled from the prior (55.9 vs. exp. 55.6, prev. 56.2), leaving the composite at 53.3, a touch below the expected 53.5 and the prior of 54.1. The accompanying report noted "Eurozone GDP is likely to have grown in the second quarter thanks to the healthy state of the services sector. However, the manufacturing sector is a powerful drag on the momentum of the economy as a whole”. Additionally, commentators noted that the ECB "will have a headache with the PM price data. This is because selling prices in the services sector actually rose more than in the previous month”.


• APAC stocks initially rose to two-week highs but then relinquished early gains amid caution over the US debt ceiling impasse. Aussie shares were capped by weakness in the consumer sectors and after Australia’s flash manufacturing PMI remained at a contraction. Japanese stocks climbed to the highest levels since 1990 before slumping in afternoon trade. China stocks were subdued following Hong Kong’s failure to sustain the early tech-led momentum after China approved 86 domestic online games in May, while the mainland was pressured after press reports speculated that the PBoC's benchmark lending rates will remain unchanged for some time, and as the US denied it was planning to lift sanctions on China's defence minister.


• US equity futures are trading around flat with the ES lingering just above the 4200 mark. The debt ceiling talks did not yield any breakthrough, but sides are still expressing optimism that a deal can be done. Axios reports that during his 12:30EDT/17:30BST meeting with the coalition in the House today, Fed Chair Powell is expected to discuss the debt ceiling as well as high inflation and rising interest rates, a source said. Traders will also be looking to flash PMI readings for May; there will be close attention on whether the US manufacturing PMI can hold ground above the 50.0 mark, whilst the services gauge is seen slipping by a full point to 52.6.


• Citi's Equity Markets Positioning Model showed bullish flows returned for US equities, as investors once again add risk to US equity positions. Citi said that in the past week, investors added USD 21bln in new long positions on S&P 500, and positioning in both S&P and Nasdaq are now the most bullish.


• Equity sectors in Europe are a mixed bag with Real Estate names top of the pile thanks to gains in German names such as Vonovia (+6.2%), Aroundtown (+6.0%) and Leg Immobilien (+4.5%). To the downside, Consumer Products & Services are the standout laggard alongside losses in index-heavyweight LVMH (-2%) with some traders noting a cautious note from Deutsche Bank on the luxury sector. Julius Baer (-7.7%) sits at the foot of the Stoxx 600 following its end of FY update in which it revealed a modest 1% Y/Y increase in AUM and flagged the first four months of 2023 as a “challenging backdrop for wealth managers”. Vivendi (-6.6%) is also enduring a session of losses after an AMF filing revealed that Compagnie de Cornouaille (Bollore-owned) sold shares in the Co.

23 May 2023 - 09:40- Research Sheet- Source: Newsquawk