EUROPEAN EQUITY UPDATE: Strong PMIs shock stocks

Analysis details (09:45)

European equities (Eurostoxx 50 -0.7%) trade lower across the board after opening losses were extended in the wake of Eurozone PMI metrics. The Eurozone-wide data reflected the better tone of services and composite PMIs from Germany and France, while the manufacturing disappointed; S&P Global said the data was consistent with GDP rising at a quarterly rate of just under 0.3%. This will likely not have too much of a bearing on the March ECB decision, however, the data underscores the resilience of the Eurozone economy in the face of rising rates and therefore could see the ECB put its foot harder on the tightening pedal in an attempt to drive down elevated inflation. Stateside, US futures (ES -0.7%, NQ -1.0%, RTY -0.9%) are lower across the board following yesterday’s market holiday with the ES still comfortably on a 4K handle in a week where FOMC minutes and PCE data are the standout highlights. On the earnings front, traders will be watching results from Walmart (WMT) and Home Depot (GD); analysts at JPMorgan have suggested that results from these two will set the tone for how stocks could trade in the near-term. JPM adds there will be particular focus on commentary about the health of the consumer as well as inflation trends. A recent survey by Bloomberg News notes that forecasters expect the Stoxx 600 to close the year out at 455 (currently 462), which would imply downside of around 1.5%. JP Morgan notes that monetary indicators suggest the possibility of a recession ahead and as such forecasts no upside for the index from current levels, whilst BofA which expects the index to fall around 20% by Q3 to 365 is positioned for a sharp loss in growth momentum over the coming months. Equity sectors in Europe are mostly lower with underperformance in Tech and Basic Resources with the latter in part being influenced by earnings from Antofagasta (-2.1%) and to a lesser extent BHP (no longer FTSE 100 listed). To the upside, Utilities names outperform thanks to post-earnings gains in Engie (+4.3%) who reported an increase in 2022 profits. The main earnings highlight today has come via HSBC (-0.7%) after the banking giant reported surging profits but offered a cautious outlook. Elsewhere on the UK corporate slate, Smith & Nephew (+5.1%) sits at the top of the FTSE 100 after encouraging FY results. Other notable gainers include Electrolux (+6.7%) which sits at the top of the Stoxx 600 with some traders citing speculation in Italian press over potential Chinese interest. To the downside, Credit Suisse (-4.9%) resides at the bottom of the Stoxx 600 after reports suggested that FINMA is to review comments made by Co's Chairman regarding the stabilising outflows.

21 Feb 2023 - 09:45- Research Sheet- Source: Newsquawk