EUROPEAN EQUITY UPDATE: Stocks steady as markets await fresh impetus

Analysis details (09:25)

• European equities (Eurostoxx 50 unch.) trade with little in the way of firm direction as fresh macro drivers for the region remain on the light side ahead of ZEW data at 10:00BST.


• In terms of the handover, APAC stocks were mixed as participants digested weaker-than-expected Chinese activity data. Japanese stocks were underpinned by earnings results, and the TOPIX climbed to a fresh 33-year high. Hong Kong was supported after news that ‘Big Short’ investor Michael Burry reportedly boosted bullish bets on JD.com and Alibaba.


• US equity futures are trading around neutral ahead of US retail sales data later today and earnings from retailer Home Depot which will help shape expectations of numbers due from WMT and TGT later this week. There are also the Debt Ceiling talks between President Biden and Congressional leaders, scheduled for 15:00EDT/20:00BST – expectations around a potential deal have been downplayed by House Speaker McCarthy ahead of the talks. There is also a solid amount of Fedspeak on today’s agenda, including from the influential NY Fed President Williams.


• Analysts at Citi note that equity investors are finally beginning to turn more cautious about credit risk in the US whereby several defensive sectors are now the most crowded. Outside of the US, Citi notes that “across Europe and Asia, the most crowded stocks have a cyclical bias and slightly underperformed last month”.


• Elsewhere, BofA May Global Fund Manager Survey notes that allocation to stocks is creeping higher, and is now at a 5-month high; BofA notes a big rotation out of commodities, and into tech stocks (which is now at the highest since December 2021) as well as the Eurozone. Investors are the most long of growth stocks vs its value counterpart since July 2020. The most crowded trades are seen as long big tech, short banks, short USD. Meanwhile contrarian trades are Long REITs, banks and value stocks; short bonds, tech and growth.


• Equity sectors in Europe are mixed with outperformance in Tech and Utilities, whilst Consumer Products & Services and Autos & Parts lag.


• In terms of individual updates, Forvia (+4.6%) sits at the top of the Stoxx 600 after being initiated with a buy rating at Goldman Sachs, whilst an upgrade to equalweight by Morgan Stanley has benefited shares in Tui (+2.7%). Elsewhere to the upside, Philips (+1.6%) shares are higher following a test result update for CPAP/BiPAP sleep therapy devices, whilst BooHoo (+12.5%) is notably firmer post-FY results. To the downside, Sonova (-9.6%) is one of the worst performing stocks in the region after FY results underwhelmed, whilst Vodafone (-3.7%) has also been weighed on by earnings disappointment; alongside which, it announced it will reduce 11k roles over three years in its new action plan. Finally, Telecom Italia (-2.5%) shares are on the backfoot after news that state lender CDP is reportedly planning to drop its offer for the Co.’s landline network, ending the KKR bidding war, via Bloomberg citing sources.

16 May 2023 - 09:25- Research Sheet- Source: Newsquawk