EUROPEAN EQUITY UPDATE: Stocks suffer at the hands of Chinese data

Analysis details (09:27)

• European equities (Eurostoxx 50 -0.5%) trade on the backfoot with updates for the region over the weekend on the light side. As such, focus has primarily fallen on Chinese activity data released overnight (see below for more detail). Today’s docket sees a slew of ECB speakers (Lane, Vasle, Elderson, Vujcic), however, given how firmly cemented expectations are for a 25bps hike by the bank next week and how much data there is between now and the September meeting, it is unlikely that they will be able to shape market expectations beyond current levels.


• Asia-Pac stocks began the week subdued as participants digested mixed economic growth and activity data from China, with conditions also thinned due to the holiday closure in Japan and typhoon disruption in Hong Kong. ASX 200 (-0.1%) was rangebound; Australian Treasurer Chalmers provided a glum outlook in which he expects a substantial economic slowdown and unemployment to increase as inflation eases. KOSPI (-0.4%) was constrained by a sombre mood after the deadly floods in South Korea. Shanghai Comp. (-0.9%) underperformed as Chinese data showed economic growth was firmer than expected QQ but disappointed on the YY reading, while Chinese Industrial Production topped estimates in June and Retail Sales missed. Furthermore, attention was also on the PBoC which maintained its 1-year MLF rate unchanged at 2.65% and rolled over the maturing loan amount.


• US equity futures are flat; the day ahead is thin for data and earnings, and there were no major news catalysts out over the weekend. Looking ahead to the second half of the year, Goldman Sachs expects equities to remain stagnant, with limited potential for returns. On the upcoming Nasdaq rebalance, GS thinks it is unlikely to address the issue of high market concentration, arguing that the index will remain too concentrated to be considered a diversified fund actively managed by the market. The weight of the Information Technology sector, which currently accounts for about half of the Nasdaq, will decline slightly from 51% to 49%, with no other sector experiencing a significant change in weight, the bank notes.


• Analysts at JP Morgan note that, in USD terms, since the relative high in May to early last week, the Eurozone has lost 12% vs. the US and believe that there is another leg of this underperformance ahead. As such, the desk reiterates its underweight view on the Eurozone, whilst noting that “the Growth-Policy trade-off in the region is likely to get worse through 2H”. JPM adds “the gap between the performance of Eurozone/US equities and Value/Growth style has closed, but the next leg down could be driven by a move lower in bond yields, as well as the earnings disappointments coming up”.


• Equity sectors in Europe are pressured with relative outperformance in defensive names. Consumer discretionary names are on the backfoot alongside losses in Richemont (-8.5%) with investors disappointed by the Co.’s latest sales update and concerned by demand impulses from the US and China; downside in Richemont has also weighed on the likes of LVMH (-3.5%), Hermes (-3.4%) and Swatch (-1.6%). Elsewhere, TomTom (+8.7%) shares have been boosted by Q1 earnings and a subsequent upgrade to FY23 guidance. Ericsson (-3.9%) sits at the foot of the Stoxx 600 following a downgrade at Barclays with the desk cautious on telecom equipment names. Finally, the FT has reported that Kretinsky is set to win the battle for the Casino (suspended) after rivals dropped out.

17 Jul 2023 - 09:27- Research Sheet- Source: Newsquawk