EUROPEAN EQUITY UPDATE: Stocks soft as PMIs underwhelm and credit standards tighten

Analysis details (09:25)

• European equities (Eurostoxx 50 -0.2%) trade with modest losses after a bout of optimism in the futures markets ahead of the cash open proved short-lived. From a macro perspective, this morning has seen the release of Eurozone PMIs, whereby the EZ-wide prints saw both the manufacturing and services prints fall short of estimates (43.0 vs. Exp. 43.7 and 47.8 vs. Exp. 48.7 respectively), leaving the composite at 46.5 vs. Exp. 47.4 (prev. 47.2). The accompanying release noted that “We wouldn’t be caught off guard to see a mild recession in the Eurozone in the second half of this year with two back-to-back quarters of negative growth." Elsewhere, the ECB’s latest Bank Lending survey revealed that credit standards tightened further (net percentage of banks of 12%, after 14% in Q2 2023), and more than expected by banks, across all loan categories. All of which has underscored the point that the ECB’s tightening efforts are being felt in the Eurozone economy and has cemented calls for an unchanged rate this week.


• APAC stocks traded mixed following a similar lead from Wall Street with Mainland China leading the gains overnight. ASX 200 (+0.2%) traded in the green with the upside led by Metals & Mining following the prior session’s gains in the complex, although gold names lag after the precious metal unwound some geopolitical risk premium after the weekend. Nikkei 225 (+0.3%) gave up the 31k level in early trade as the prior day’s firming of the JPY weighed on the export-heavy index. Hang Seng (-0.9%) and Shanghai Comp (+0.8%) opened mixed with the former playing catch-up following its long weekend, whilst the latter gained as reports also suggested US and China held the first working group meeting.


• US equity futures are trading marginally firmer following yesterday’s choppy session in which the Ackman-induced gains pared into the close, while the Nasdaq was kept afloat by the pullback in bond yields. As it stands, the ES is up +0.2% and just about holding above the 4250 mark, whilst the NQ has continued its outperformance with gains of 0.4%; RTY +0.3%. In terms of the macro backdrop in the US, some desks (as well as Bill Ackman yesterday) have continued to raise the point that the US economy is slowing faster than suggested by recent data; a viewpoint which some ascribe in part to more downbeat earnings-related commentary relative to official data prints. A soft outturn for today’s survey-based PMI releases could begin to see a wider adoption of this viewpoint and potentially add further pressure on yields; it remains to be seen whether the equity market would see support from such a pullback in yields or be dragged lower as the health of the US economy is questioned. Today’s earnings slate is a busy one with Microsoft, Alphabet, Visa, Coca-Cola, Texas Instruments, Verizon, General Electric all due on the docket.


• Equity sectors in Europe are mixed with Basic Resources top of the leaderboard thanks to well-received earnings from UPM Kymmene (+4%), Stora Enso (+3.2%) and Norsk Hydro (+3.2%) which collectively account for just under 15% of the Stoxx 600 Basic Resources Index. To the downside, Banking names lag peers with Barclays (-7.1%) stuck at the foot of the FTSE 100 after reporting soft Q3 revenues and lowering NIM guidance; Natwest (-2.9%), Lloyds (-1.9%) and Standard Chartered (-1.6%) are lower in sympathy. Furthermore, UniCredit (-1%) has been unable to benefit from a broadly better-than-expected earnings report and upgrade to FY revenue and net interest income guidance with some desks drawing attention to EUR 1.1bln being set aside for an Italian windfall tax payment. Logitech (+8.6%) is the best performing stock in the Stoxx 600 following solid earnings and an earnings upgrade, however, positivity for the SMI has been tempered by post-earnings downside in Novartis (-1%) despite raising guidance. In the retail sector, Puma (+3.5%) and Hermes are both firmer post-results with the latter noting that it continues into FY23 with confidence and is maintaining investments in China.

24 Oct 2023 - 09:25- EquitiesData- Source: Newsquawk