EUROPEAN EQUITY UPDATE: Stocks under pressure as EZ data draws caution

Analysis details (09:25)

• European equities (Eurostoxx 50 -0.5%) trade with marginal losses with sentiment souring after the cash open and dragging indices lower. There wasn’t much in the way of clear fundamental catalysts behind the initial price action. However, the final readings of Eurozone manufacturing PMI helped to reinforce the tough conditions for the sector with the accompanying release noting “It looks like the manufacturing recession is here to stay in the eurozone. Stronger declines in output, new orders and purchase volumes at the start of the third quarter back up our view that the economy as a whole is in for a bumpy ride in the second half of the year”. Asides from the data, the divergence between regional indices has been driven by various earnings reports and stock-specific updates.


• Asia-Pac stocks were mostly higher following the positive lead from Wall St where the S&P 500 notched its 5th consecutive monthly gain, while participants also digested disappointing Chinese Caixin Manufacturing PMI data and the RBA rate decision. ASX 200 (+0.5%) traded positive amid strength in tech and the commodity-related sectors with further upside after the RBA kept rates unchanged. Nikkei 225 (+0.8%) was underpinned by a weaker currency and with headlines in Japan dominated by earnings releases, while a recent poll by Bloomberg also showed that BoJ watchers don’t expect a further policy shift from the central bank this year with April now seen as the likely timing for a policy change. Hang Seng (-0.3%) and Shanghai Comp. (Unch.) were subdued following the disappointing Caixin Manufacturing PMI data which slipped into contraction territory, with the mainland kept afloat by further support efforts from China.


• US equity futures (ES -0.2%, NQ -0.3%, RTY -0.1%) are trading on the backfoot with traders cautious following a weaker Caixin PMI and ahead of US ISM and JOLTS data. The mood may also have been dampened by the latest Senior Loan Officer Opinion Survey, which indicated that credit conditions remain unusually tight, despite the fading banking crisis. This does argue against the soft-landing narrative that has propped up the market in recent months, with Jim Reid at Deutsche Bank, noting that the four times since the start of the SLOOS in 1990, that have seen such tightening, have all been associated with recessions. Looking ahead, the markets will await the US ISM manufacturing report alongside JOLTs data, which will provide more insight into the strength of the economy. Traders will also take note of speak from Fed’s Goolsbee, though is unlikely to deviate away from his balanced commentary seen in yesterday's interview with Yahoo Finance. There are also a few notable corporate earnings today, including AIG, AMD, EA, CAT and MRK.


• Equity sectors in Europe have a negative tilt with clear underperformance in the Autos sector amid losses in BMW (-5.9%), which has failed to benefit from raising FY23 automotive EBIT margin guidance with investors potentially concerned about the Co. flagging the impact of increasing raw materials costs and headwinds posed by supply chains which will carry into H2 performance. Elsewhere, downside has also been seen in the Real Estate, Retail and Basic Resource sectors with the latter hampered by downside in some underlying commodity prices and a poorly received H1 earnings release from Fresnillo (-7.8%). To the upside, Energy, Food, Beverage & Tobacco and Banks are the only sectors in the green. BP (+1.1%) is helping prop up the energy sector post-Q2 earnings with the Co. announcing a USD 1.5bln buyback and 10% increase in its dividend despite profits falling well short of analyst estimates. For the banking sector, HSBC (+2.9%) is one of the best-performing stocks in the Stoxx 600 after reporting better-than-expected Q2 revenues and pre-tax profit whilst noting that it continues to expect to have substantial distribution capacity going forward. The Food, Beverage and Tobacco sector has been supported by FY results from Diageo (+1.8%) which saw the Co. boost its dividend by 5%. Finally, Aston Martin (-5%) is lower on the session after announcing a GBP 210mln share placement.

01 Aug 2023 - 09:25- EquitiesData- Source: Newsquawk