EUROPEAN EQUITY UPDATE: Stocks struggle for direction as fresh impetus remains lacking

Analysis details (09:28)

• European equities (Eurostoxx 50 unch.) trade with little in the way of firm direction as incremental catalysts for the region remain light ahead of next week’s ECB policy announcement which is widely expected to deliver a 25bps hike. On the ECB, the Bank’s latest Consumer Expectations survey for April saw the 1yr ahead expectation decline to 4.1% from 5.0% with the 3yr rate declining to 2.5% from 2.9%. That said, it is worth noting that the likes of Lagarde, Nagel and Knot have continued to remind us that inflation remains “too high”.


• APAC markets were mostly lower after subdued performance on Wall Street, and weak ISM Services survey data out on Monday. Japan’s Nikkei 225 continued its ascent, topping 32,000. Aussie shares declined; the RBA lifted its Cash Rate +25bps to 4.10% (exp. unch at 3.85%). Policymakers continue to retain the option for further rate rises ahead. Hang Seng and Shanghai Comp. were varied with the former supported by strength in property names whilst the mainland was less decisive and lagged amid mixed US-China rhetoric. After hours, Bloomberg reported that China has reportedly asked the largest banks to cut deposit rates to boost the economy.


• Analysts at Citi note that “investors are strongly overweight US equities against all other regions and have even reduced the bullish momentum in Japan equities”. Citi adds that positioning is at its most extreme in Nasdaq futures whereby profits could be booked given that investors are now sitting on “very extended profits”. In Europe, investors are reducing market exposure and positioning in futures is close to neutral.


• US equity futures are hugging the unchanged mark with the ES around 20 points shy of the 4300 mark after venturing as high as 4305.75 yesterday. There is no major data or speakers today, though the IBD/TIPP sentiment indices will help colour consumer expectations. In absence of other catalysts, traders will continue to debate whether US equities are in a real bull market, or whether recent gains simply represent a bear market rally.


• Equity sectors in Europe are mixed with Health Care top of the leaderboard whilst Energy lags to the downside with WTI and Brent both below Friday’s closing levels despite efforts by OPEC+ over the weekend to bolster the energy market. In terms of individual updates, British American Tobacco (flat) maintained FY guidance as part of its H1 update. Unilever (-0.5%) has reportedly started searching for a new chair, according to FT sources. Symrise (+0.9%) has made a USD 544 million bid for Swedencare (-5.2%), offering SEK 37.50/shr (vs close SEK 42.07 on Monday). Deutsche Bank (-0.4%) has reached a settlement over the USD 725mln SunEdison loan, according to Bloomberg. Finally, Burberry (+1.2%) have been bolstered by a broker upgrade at HSBC.

06 Jun 2023 - 09:27- Research Sheet- Source: Newswires