EUROPEAN EQUITY UPDATE: Stocks tough start to the week continues

Analysis details (09:32)

• European equities (Eurostoxx 50 -0.5%) have continued their soft start to the week with the global pick-up in yields cited as a driving force for the equity space. US yields have been cited as the main source of upside pressure in the rates space with no clear individual driver behind the move; some explanations include the Fed’s higher-for-longer mantra, increasing oil prices, and US fiscal sustainability concerns. However, many desks are of the view that the landscape will become clearer when tier 1 data such as NFP this Friday and CPI next week are released. Closer to home in Europe, the macro story very much remains as it has been since the ECB’s meeting last month with speakers from the Bank since continuing to refrain from ruling out further rate cuts, however, future moves from here will be determined by forthcoming data rather than pre-set ambitions at the bank.


• Asia-Pac stocks declined amid the rising global yield environment and the continued absence of some key participants. ASX 200 (-1.3%) was dragged lower by underperformance in the mining-related sectors due to the recent declines in commodity prices and with headwinds from the rising yields after Australia’s 10yr yield rose to its highest since 2011, while the RBA decision to keep rates steady provided no major fireworks. Nikkei 225 (-1.8%) weakened with all industries pressured and energy firms leading the broad declines across Tokyo stocks. Hang Seng (-3.0%) was the worst hit on return from the extended weekend amid notable losses in property, tech and energy.


• US equity futures (ES +0.2%, NQ +0.2%, RTY +0.2%) are trading firmer following a mixed session yesterday. The important data release yesterday was the ISM Manufacturing PMI, which beat expectations and along with hawkish speak from various Fed members, led to a surge in yields. Fed’s Mester (2024 Voter, Hawk) said higher rates are needed to make sure the disinflation process continues, generally echoing Bowman’s (Voter, Hawk) comments earlier in the day. In terms of Fed speakers for today, Fed’s Bostic (2024 Voter, Dove) is due to speak at 13:00 BST / 08:00 ET. And moving to data releases, two critical prints are to be released at 15:00 BST / 10:00 ET, including US JOLTS and IBD/TIPP. The former will give an insight into the health of the labour market, ahead of the NFP report on Friday, whilst the latter will provide an early take on consumer confidence for the month.


• Goldman Sachs' highlights the evolving landscape of equity markets. Despite concerns about inflation and rising interest rates, global equity markets have largely remained flat. The year began with fears of economic deterioration, but optimism about avoiding a recession and peaking inflation led to a modest rally. The tech sector, especially in the US, has been a standout performer, driven by AI-related growth potential. However, this rally has been concentrated in a few leading companies, leaving many other stocks with limited gains. Looking ahead, GS suggested its clients focus on regional diversification, and on quality and dividend-paying stocks.


• Equity sectors in Europe are a mixed bag with Banks, Insurers and Travel & Leisure the outperformers, whilst laggards include Utilities and Basic Resources. Retail names are also a touch lower amid losses in UK-listed BooHoo (-7.3%) after the Co. cut its FY outlook and now sees revenue falling 12-17% (prev. a fall of 10-15%). This has weighed on the likes of Zalando (-2.8%) which has also been hampered by Deutsche Bank cutting its price target on the Co. to EUR 31.50 from EUR 37.00. Elsewhere in the world of fashion, Burberry (-2.5%) shares are on the backfoot after being downgraded to sell at UBS. Novo Nordisk (+1.8%) shares are on the front foot after successfully defending its patents for the active ingredient in its weight-loss drugs, Ozempic and Wegovy. To the downside, Greggs (-2.8%) shares are lower with some desks noting disappointment that the Co. merely reiterated its guidance at its Q3 update, whilst UK homebuilder Vistry (-2.2%) has been weighed on by a broker downgrade to hold at Jefferies.

03 Oct 2023 - 09:32- Fixed IncomeData- Source: Newsquawk