EUROPEAN EQUITY UPDATE: Stocks soft, inflation falls, debt ceiling vote looms

Analysis details (09:33)

• European equities (Eurostoxx 50 -0.5%) trade on the backfoot following the soft handover from the APAC region (see below for details). Stocks in Europe have been unable to benefit from today’s main macro story thus far which has come in the form of softer inflation data from German regionals (ahead of the mainland release at 13:00BST) as well as a marked drop off in the French headline Y/Y CPI to 5.1% from 5.9% (vs. Exp. 5.5%). By the close of business today, around 70% of the Eurozone will have reported inflation metrics ahead of tomorrow’s bloc-wide release whereby as things stand, expectations are now for a softer print than forecast by consensus.


• Asia-Pac stocks closed mostly lower due to mixed sentiment on Wall Street amid debt ceiling jitters, weak China PMI data, lower oil prices and North Korea tensions as the pariah nation attempted to launch its first military spy satellite, triggering emergency alerts in South Korea and Japan. Aussie CPI data for April was above expectations, prompting some to revise up their RBA rate hike calls.


• US equity futures are softer (ES -0.2%, NQ -0.3% and RTY -0.2%) ahead of a House vote on the debt ceiling deal; some hardliners have indicated that they would be voting against the measures, though this was always expected, and it is likely to take a bipartisan effort to get it done. Markets are currently discounting a 25bps rate hike with around 65% certainty, while no cuts are fully priced for this year. Today will see further Fedspeak, by way of Fed’s Bowman (voter, recently said that more policy tightening was likely appropriate), Fed's (non-voter, seems open to a June pause), Fed’s Harker (voter, in April argued that the Fed was close to where it needed to be on rates), and Fed Vice Chair nominee Jefferson (voter, who recently said inflation remained too high, and that the impact from hikes is yet to be fully felt).


• Citi's latest positioning model suggests that investors are continuing to add more risk flows to US equities, with both S&P and Nasdaq bullish flows increasing - the latter's positioning is now at a three-year high, amid elevated profit levels and increasing profit taking risk.


• Equity sectors in Europe are lower across the board with underperformance in Consumer Products & Services amid Chinese PMI-induced losses in luxury names which has sent the likes of LVMH (-1.3%), Kering (-2.5%), Hermes (-2.1%) and Richemont (-2%) lower. To the upside, Utilities, Telecoms and Tech sit in marginal positive territory. In terms of individual updates, Heineken (-1.7%) has been weighed on by news that Mexico’s FEMSA has offloaded EUR 3.3bln of shares in the Co. which equates to around a 5.9% stake in Heineken. Elsewhere, Drax (-2.7%) shares are being weighed on by news of an OFGEM investigation and Prudential (-1.8%) is lower following the departure of its CFO. Finally, Glencore is in focus following Bloomberg source reporting suggesting that the Co. is set to sweeten its bid for Teck Resources; announcement could be made in the coming weeks.


• Continuing focus on tech names, Foxconn Chair Liu at their AGM said we could see triple-digit AI servers growth in H2. For reference, the chip names are pressured in Europe this morning with Nvidia -1.3% in pre-market trade after the Co. surmounted the USD 1tln cap level yesterday.

31 May 2023 - 09:33- EquitiesData- Source: Newsquawk