EUROPEAN EQUITY UPDATE: Stocks tilt lower on return from the long weekend as traders eye a myriad of upcoming risk events

Analysis details (10:08)

• Equities in Europe have tilted mostly to the downside on the first trading session of the week for the region, following a mostly lower APAC session with Chinese markets away on their Golden Week holiday, whilst the RBA delivered a surprise 25bps hike to its Cash Rate overnight. US stocks closed little changed yesterday after a choppy performance amid lighter trading conditions with London and Europe absent and many looking to the risk events during the week ahead. During yesterday's state-side session, the SPX initially experienced gains and reached a new multi-month high before ultimately losing all early progress. Regional bank stocks faced pressure as regulators took control of First Republic Bank and approved its sale to JPMorgan. Meanwhile, the US ISM Manufacturing survey showed stronger-than-anticipated results, with a significant increase in the prices paid component for April, prompting a hawkish response.


• Back in Europe, bourses initially opened mixed before tilting lower (Euro Stoxx 50 -0.2%; Stoxx 600 -0.3%) with the overall sentiment seemingly cautious. The Manufacturing PMIs from regions led to a revision higher in the Euro Zone metrics, whilst the UK also saw an upward revision. The themes of this month’s PMIs were supply chain normalisation and sharp declines in input prices. "The future business outlook was somewhat more upbeat in April. This may come as a surprise given the decline in new orders." S&P Global said in the EZ release. Meanwhile, the ECB Bank Lending Survey overall indicates a marked tightening of financial conditions for the March 22nd- April 6th survey period. Overall, the release was perceived as "dovish" and adds to the base case that the May 4th meeting will result in a 25bp hike to 3.25% with the implied probability of such an increment increasing slightly to a near 80% chance (vs just shy of 75% pre-release). ING said “Weaker demand for loans, tighter lending standards and already muted loan growth support our view of a 25bp rate hike at Thursday's European Central Bank meeting.” Ahead of the ECB meeting this week, EZ inflation largely printed as expected and did little to shift market pricing at the time, although the Italian CPI release alongside that was more concerning, with headline Italian CPI rising to 8.8% Y/Y from 8.1% in March (vs exp. 7.8%).


• In terms of today’s price action, major indices are posting varying degrees of losses, whilst the Swiss SMI (+0.3%) bucks the trend owing to modest gains across some of its heavyweights. The FTSE 100 (Unch.) is flat following some large-cap earnings – with gains from HSBC (+6.0%) countered by losses from BP (-5.2%). Delving deeper into the earnings, HSBC topped expectations on pre-tax, revenue, and CET1 ratio while announcing an up-to-USD 2bln share buyback and a provisional gain of USD 1.5bln on the acquisition of Silicon Valley Bank UK Limited. BP meanwhile announced a further USD 1.75bln share buyback but missed on revenue and guided Q2 refining margins below Q1 amid weaker middle distillate margins. Elsewhere, UK homebuilders are benefiting from UK Nationwide house prices unexpectedly rising in April, alongside reports UK PM Sunak is drawing up plans to boost support for first-time home buyers via a “Help to Buy” scheme. In terms of other movers, Software AG (+6.9%) is surging on reports Bain Capital has built a stake in Software AG raising the prospect of a takeover battle for the German company while Silver Lake Management has agreed to acquire Software AG for EUR 30/shr in cash. Sanofi (-2.3%) fell as much as 5% at the open following a broker move and amid an FT report that a proposed deal between BioNTech/Pfizer and the EU for about 70mn Covid-19 shots a year until 2026 threatens to push rivals Moderna, Novavax, and Sanofi out of the market, risking the regional prevention of Covid-19 being left to just one product.

02 May 2023 - 10:10- Research Sheet- Source: Newsquawk