EUROPEAN EQUITY UPDATE: Stocks subdued as Fed repricing reaches Europe and news flow remains light

Analysis details (10:03)

Bourses in Europe hold onto the losses seen at the cash open (Euro Stoxx 50 -1.1%; Stoxx 600 -1.0%) as headwinds from Wall Street reverberated in APAC markets before reaching Europe. US equity futures are also subdued but lower to a lesser extent – with a modest lag seen in the NQ (-0.7%) vs the ES (-0.5%), YM (-0.5%) and RTY (-0.5%). The downbeat mood is a continuation of the sentiment seen following the 40yr-high inflation print yesterday – which was later exacerbated by Fed’s Bullard who floated the idea of an inter-bank meeting. On that note, Fed-watcher Tim Duy noted that he would not be surprised by an inter-meeting move either Friday or Monday although a Bloomberg article stated that Fed officials are in no hurry to hike rates before the March meeting and a 50bps move in March is not yet likely despite the speculation. That being said, analysts have been busy updating their Fed calls. Citi now says a 50bps March hike is likely. Goldman Sachs sees arguments for a 50bps move in March but expects seven consecutive 25bps hikes this year vs their previous view of five. HSBC sees a 50bps increase in March and a total of 150bps hikes this year. SGH Macro Advisors’ baseline outlook involves the equivalent of seven 25bps hikes this year – “If it waits until March, the Fed will kick off this cycle with a 50bp hike and justify it to open a subsequent meeting for quantitative tightening. We need to put an inter-meeting hike on our radar as well.”, the desk says. Meanwhile, Refinitiv’s pricing data (at the time of writing) suggests there is around a 66% chance of that half-point hike in March. It is worth remembering that markets will see another US inflation release (March 10th) and labour market report (March 4th) before the Fed’s meeting (March 15-16th), whilst the Fed minutes from the January meeting will be out next Wednesday. Back in Europe, the FTSE 100 (-0.9%) and AEX (-0.9%) are slightly more cushioned than some of their regional peers, with the common denominator being Unilever (+1.4%) which pares back some of yesterday’s losses. The other indices see relatively broad-based losses. European sectors are all in the red with no clear theme. Tech is the clear laggard as the prospect of higher rates brings valuations into focus. Consumer Staples see shallower losses amid the aforementioned Unilever performance. In terms of movers, British American Tobacco (+0.7%) is firmer after its board approved a GBP 2bln share buyback, with its peer Imperial Brands (+0.4%) moving in sympathy after both firms initially opened lower as BATS downbeat forecast on the global tobacco industry. Meanwhile, ABN AMRO (-1.8%) is hit following broker downgrades at both Morgan Stanley and JPMorgan Chase.

11 Feb 2022 - 10:02- EquitiesResearch Sheet- Source: Newsquawk