EUROPEAN EQUITY UPDATE: Stocks solid as Nvidia beat bolsters the tape

Analysis details (09:28)

• European equities (Eurostoxx 50 +0.8%) trade on the front-foot with sentiment in global equities supported by yesterday’s after-hour earnings beat for Nvidia which has managed to propel US equity futures higher overnight (see US section for more details). Closer to home within Europe, in the absence of any fresh incremental updates, focus remains on the fallout from yesterday’s soft PMI releases and how this will impact the Governing Council at its September meeting. As it stands, market pricing is a near-enough coin flip between unchanged and a 25bps hike with investors awaiting flash CPI metrics on August 31st. That said, many analysts are now coming round to the view that the Bank could pause next month whilst retaining the option to hike in October should inflationary developments warrant such a course of action.


• Asia-Pac stocks traded higher as the region took impetus from the gains on Wall St. where the Nasdaq led the advances across the major indices as yields declined in the aftermath of weak PMI data and with futures also boosted by strong Nvidia earnings. ASX 200 (+0.5%) was positive amid the continued influx of earnings and as strength in tech and financials atoned for the underperformance in the defensive sectors. Nikkei 225 (+0.7%) was firmer after it recently reclaimed the 32,000 level and with semiconductor names in Asia riding the Nvidia wave. KOSPI (+1.3%) was boosted with the index unfazed by North Korea’s latest failed ‘satellite’ launch, while the BoK provided no surprises and maintained its base rate at 3.50%, as unanimously expected. Hang Seng (+2.1%) and Shanghai Comp. (+0.1%) conformed to the upbeat mood in which the Hong Kong benchmark climbed back above 18,000 amid tech strength, although gains in the mainland were limited after the PBoC’s liquidity drain and as participants await more big bank earnings.


• US equity futures (ES +0.7%, NQ +1.4%, RTY +0.1%) are trading on the front foot with outperformance in NQ, being helped by Tech-led gains following yesterday’s Nvidia (+8.2%) blockbuster earnings report. Looking in more detail, the Co. reported Adj. EPS USD 2.70 (exp. USD 2.09), Revenue USD 13.51bln (exp. USD 11.22bln) and approved a further USD 25bln in share buybacks without expiration. The accompanying commentary was interesting, whereby the Co. noted that Chinese demand “was in the historical range” and that “demand is tremendous". Away from Nvidia, the data releases yesterday provided some insight into the strength of the US economy, with PMIs coming in softer. The accompanying commentary suggested that “rising wage pressures… have pushed input cost inflation higher” and this is further testified after the BLS revised payrolls down by 306k (exp. 500k). Overall adding to the tight labour force woes currently existing in the markets. The focus for today will be on the first day of the Fed’s Jackson Hole Symposium, though the full docket for the event is due to be released tomorrow. However, today Fed members Harker (2023 Voter, Dove) and Collins (2025 Voter, Neutral) are due to speak. In terms of data releases, the markets will await Durable Goods and Initial Jobless Claims, which will give further insight into the strength of the economy. Additionally, traders will keep an eye out for earnings from Dollar Tree and Marvell Technology (+4.8%), with the latter already benefiting from Nvidia earnings.


• HSBC is cautiously optimistic about the US stock market, expecting potential upside due to strong earnings growth despite pressure from higher rates. The bank's view is premised on strong positive economic data (labour market is strong, GDP growth consensus is grinding higher, reversing the downward bias), Q2 earnings surpassing expectations (Q2 earnings has seen about 80% of S&P 500 companies top estimates the S&P (of the 80% that have reported so far, better than last quarter), and the potential for strong earnings growth in the face of better macro conditions. The bank says it sees upside even in the face of potentially higher rates, and has an end-2023 PT of 4,600, but says that at the current yield level, its target would fall to 4,500. "Current yields and consensus EPS forecasts support a S&P target closer to 4,300, implying further downside if yields are sustained and EPS forecasts materialise," it says, "we, however, are more constructive on earnings growth backed by strong economic data and Q2 earnings season beats."


• Equity sectors in Europe are higher across the board with the exception of Basic Resources (Anglo American -1.4%, Glencore -1.4%). Notable gainers include the Real Estate sector which is benefitting from the recent pullback in yields whilst Tech is also enduring a session of healthy gains as upside in Nvidia supports regional peers such as AMS-Osram (+3%), ASM International (+2.6%), ASML (+1.5%) and Infineon (+1.1%). Elsewhere, the Italian banking sector has been in focus after reporting via Bloomberg noted that Italy is preparing a new borrower-friendly rule for bad loans to be approved by the end of the year, according to sources. Finally, GAM Holdings (+1.7%) has entered into discussions with Newgame after expecting Liontrust to declare its offer as unsuccessful.

24 Aug 2023 - 09:28- Research Sheet- Source: Newsquawk