EUROPEAN EQUITY UPDATE: Stocks steady on the final day of trade in July

Analysis details (09:28)

• European equities (Eurostoxx 50 unch.) trade with little in the way of firm direction with macro updates for the region on the light side heading into month-end. As such, divergences between regional indices are mainly a by-product of stock-specific updates and corporate earnings. On which, GS says that Q2 earnings have been as expected for most companies, but there were more negative surprises for STOXX 600 ex-financials. Only 30% of companies beat consensus estimates by more than 2%, which is lower than usual, and this occurred despite negative revisions and weaker sentiment leading up to the earnings season. Positive surprises led to cautious market reactions, while negative surprises were penalised more than usual, GS observes.


• Asia-Pac stocks headed into month-end mostly on the front foot after Friday’s data and tech-led momentum from Wall St. The ASX 200 was tentative with strength in the commodity-related sectors offset by weakness in consumer stocks and financials, with the mood cautious ahead of tomorrow’s RBA rate decision. Nikkei 225 was boosted from the open and rose back above the 33,000 level amid a weaker currency and as markets digested the BoJ’s recent shift to a more flexible approach which provided early tailwinds for financials, while the central bank announced unscheduled bond purchases. While the Hang Seng and Shanghai Comp. were higher amid stimulus-related optimism as Chinese officials are set to announce more measures for consumption, recovery, and expansion, while the NDRC said it will solidly promote development and reform, as well as stick to the general principle of making economic stability a top priority. Furthermore, mixed official PMI data from China failed to dampen the mood in which headline Manufacturing PMI slightly topped forecasts but remained in contraction territory at 49.3 (exp. 49.2) and Non-Manufacturing PMI disappointed at 51.5 (exp. 53.0).


• US equity futures (ES, NQ & RTY Unch.) are trading flat as markets digest a mixed set of Chinese PMIs and ahead of a week of important US data including ISMs and the NFP report on Friday. Looking ahead, the calendar is thin on the data front, with Chicago PMI the only print of note. However, markets will look towards the Fed’s SLOOS, which will provide some insight into lending volumes and how much credit conditions have tightened. Participants also await earnings from the likes of ON Semiconductor, Western Digital Corp. and Arista Networks. Finally, traders will look towards commentary from Goolsbee (2023 Voter, Dove), the first member to speak post-FOMC announcement last week, in which he is likely to repeat familiar dovish commentary.


• Analysts at JP Morgan believe that overweight growth vs. value should remain relevant for the rest of the year, adding that if bond yields continue to move lower, it could drive the next leg of underperformance of EZ equities vs. the US. JPM notes that if its call of a move lower in bond yields in H2 comes true and is accompanied by disappointing growth outcomes, “one should be bullish on duration trades”. The desk is also of the view that defensives could catch a bit in H2 after being out of favour for a while and “are far from trading expensive vs Cyclicals”.


• Equity sectors in Europe trade have a slightly negative tilt with underperformance in Construction & Materials and Food, Beverage & Tobacco with downside in the latter driven by post-earnings losses in Heineken (-5.5%) which saw the Co. post softer-than-expected organic revenue growth, cut its FY adjusted operating profit organic growth outlook and provide downbeat commentary for the sector. To the upside, outperformance can be seen in the Health care sector and to a lesser extent, Basic Resources and Banks. In terms of stock-specific updates, Telia (-3.6%) President/CEO Kirkby will be leaving the Co. by January 31st 2024 at the latest. At which point, Kirkby will become the BT (-0.7%) CEO, replacing current CEO Jansen. Post-earnings gainers include Galp Energia (+2.9%), Ertse Group (+1.9%), whilst laggards include Bollore (-2.7%), Legrand (-1.4%) and Leonardo (-1.3%).

31 Jul 2023 - 09:28- EquitiesData- Source: Newsquawk