EUROPEAN EQUITY UPDATE: Stocks struggle for direction ahead of upcoming risk events

Analysis details (09:26)

• European equities (Eurostoxx 50 -0.3%) are trading mixed as the macro narrative remains broadly unchanged in the run up to Thursday’s ECB rate decision. That being said, UK labour market metrics drew attention earlier in the session with the unemployment rate in the 3M period to July advancing to 4.3% from 4.2%, whilst headline earnings growth unexpectedly jumped to 8.5% from a previously revised 8.4% in the 3M Y/Y period to July; note, this was impacted by the NHS and Civil Service one-off payments made in June and July 2023. From a policy perspective, the release had very little impact on pricing for the September 21st meeting which remains 77% in favour of a 25bps hike with around a 50% chance of another hike seen thereafter.


• Asia-Pac stocks were mixed with the region tentative in the absence of any fresh macro catalysts and with participants bracing for the US CPI data due midweek. ASX 200 (+0.2%) was indecisive amid weakness in energy, tech and financials, with trade also contained after a somewhat mixed business survey and weaker consumer sentiment data. Nikkei 225 (+0.9%) gained amid strength in automakers and with SoftBank among the early leaders after its Arm unit IPO was oversubscribed by 10 times although price action was choppy as the index nearly pared all of its gains before revisiting session highs. Hang Seng (-0.4%) and Shanghai Comp. (-0.2%) were flat throughout the session with early downside cushioned following another firm liquidity effort by the PBoC and after Country Garden Holdings received approval to extend 6 onshore bond repayments by 3 years. These factors were ultimately not enough, and the indices succumbed to selling pressure later in the session.


• US equity futures (ES -0.3%, NQ -0.3%, RTY -0.2%) are trading on the back foot, as sentiment turned sour at the start of the European session. The markets finished in the green yesterday, with outperformance in NQ, largely supported by strength in Tesla (+10.1%) following a big broker upgrade at Morgan Stanley.  The docket was thin yesterday, though the NY Fed SCE showed one-year inflation expectations rose to 3.6% (prev. 3.5%), three-year dipped to 3.8% (prev. 3.9%) and five-year rose to 3.0% (prev. 2.9%). Looking deeper into the survey, expectations of higher unemployment rose to 38.5% (prev. 36.7%). Back to today, the calendar remains thin, with the only release of note coming in the form of the NFIB Business Optimism Index. Though, much of the focus will be on Tech names, particularly on Oracle (ORCL), which saw a 9.4% drop in its shares after-hours, following its earnings call. And sticking with Tech, Apple’s (AAPL) highly anticipated product event will take place in the afternoon, where it is expected to unveil a new iPhone device. And as is the case for Apple's new launches, the largest iPhone factory in China is ramping up its hiring. This is very much in focus, as the Co. continues its ties in the country, withstanding some of the recent negative reports, in which government officials are barred from using iPhones.


• The latest BofA Fund Manager Survey revealed that sentiment is no longer extreme bearish (17-month high in global equity allocation) but not yet bullish. From a regional perspective, the allocation to US equities spiked 29ppt M/M to net 7% overweight; the highest allocation since Aug’22 and the largest ever monthly increase in allocation (since at least the 2004 data inception). The allocation to Eurozone equities was up 2ppt M/M to net 10% underweight; allocation remains near the lowest level since Dec’22. The allocation to EM equities collapsed 25ppt M/M to net 9% overweight; lowest since Nov’22 and the largest monthly decline in allocation since Nov’16.


• Equity sectors in Europe are a mixed bag with not a great deal in terms of breadth. To the upside, Telecoms and Health Care outperform, whilst Technology lags on account of losses in SAP (-1.8%) with the German heavyweight dragged lower in sympathy with after-hours losses in Oracle (-9.7% pre-market) post-earnings, which saw the Co. provide light revenue guidance. In terms of stock specifics, Hellofresh (+5.8%) is the best performing in the Stoxx 600 after being added to JP Morgan’s analyst focus list and being placed on “positive catalyst watch”. Elsewhere, Associated British Foods (+4.2%) is higher following its latest trading update where it noted that its outlook for the FY is slightly better than its prior expectation. To the downside, Smurfit Kappa (-10.3%) sits at the foot of the Stoxx 600 after agreeing to combine with WestRock. Finally, Metro Bank (-5.8%) shares are suffering after news that the BoE’s PRA would likely not approve its application to use internal credit risk models in its residential mortgages business this year, according to Reuters.

12 Sep 2023 - 09:26- Research Sheet- Source: Newsquawk