EUROPEAN EQUITY UPDATE: Tech rally reverberates across to Europe after Chinese markets recover in late trade

Analysis details (09:16)

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  European bourses opened firmer across the board and have edged higher since the cash open following a similar APAC session as the tech-driven optimism from Wall Street reverberated across regions. To recap, US stocks were mixed albeit predominantly firmer with big tech leading the strength in US indices despite the upside in US yields, while the small-cap Russell 2k underperformed. AI-name NVIDIA surged and closed higher by 8.5% ahead of Q2 earnings after the market close on Wednesday. Overnight, Asia-Pac equities initially traded mixed amid earlier indecision across Chinese stocks, but Chinese markets eventually conformed to the broader constructive risk tone, with the Hang Seng and Shanghai Comp. surging in late trade despite a lack of catalysts. Australia’s ASX 200 was rangebound amid a slew of earnings releases including a drop in profits for mining giant BHP. Over in Tokyo, Nikkei 225 was underpinned as tech names in the Asia-Pac region took inspiration from US peers and with SoftBank among the notable performers after its Arm unit filed for a US IPO, set to be the biggest listing this year.


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  US equity futures tilt firmer but trade with shallower gains than its European peers, with the ES (+0.3%) inching higher above 4,400 whilst the NQ (+0.5%) reclaims territory above USD 15,000. The RTY (+0.3%) is in focus after S&P joins Moody's in cutting US banks amid a tough environment with KeyCorp (KEY) and Comerica (CMA) among the five banks cut by S&P, according to Bloomberg. Many depositors have “shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs,” S&P said. As a reminder, on the 8th of August, Moody's cut the ratings of 10 US banks by one notch and placed some larger banks on review for potential downgrades. Away from regional banks, the attention later this week turns to the Fed Jackson Hole symposium, with Fed-whisperer WSJ's Timiraos yesterday stating reasons why he believes Fed Chair Powell is unlikely to speak about higher neutral rates at Jackson Hole. As a reminder, Timiraos wrote an article over the weekend suggesting that the neutral rate may now be higher, which has led to much speculation that the piece was something of a preface for Chair Powell at Jackson Hole later this week, although these latest comments pour some cold water on the idea that Powell is about to announce a new, higher neutral rate regime.


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  Back in Europe, equities are marching higher (Euro Stoxx 50 +1.2%; Stoxx 600 +0.6%), after Euro Stoxx cash opened firmer by 0.6%, with gains in the Eurozone spearheaded by the tech sector in a similar sectoral performance to the Wall Street. The UK’s FTSE 100 (+0.3%) fails to fully benefit from the tech-led euphoria amid the lack of large-cap UK tech stocks in the index. The top performers in EZ bourses are dominated by chip names - ASML (+3.1%) leads the upside in the EZ bellwether index alongside the Dutch AEX. DAX sees Infineon (+2.1%) as its top gainer as the index topped yesterday’s 15,710 peak and took out a reported Fib level at 15,718. The CAC 40 and FTSE MIB see STMicroelectronics (+2.3%) among its top performers.


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  Sticking with sectors and aside from the outperformance in Tech, the Basic Resources sector also sits at the top of the bunch following a sentiment-driven rebound in base metal prices, whilst mining giant BHP, alongside their earnings, noted China's demand for iron ore in the medium term is expected to be lower than it is today, but sees a broadly balanced iron ore market on average across 2023 calendar year and now sees a small surplus or balanced copper market – Anglo American (+1.5%), Glencore (+1.5%), and Fresnillo (+1.5%) are underpinned. On the downside, Energy sits as the current laggard amid uneventful price action in the oil complex, with the next worst performers consisting of defensive sectors such as Optimised Personal Care, Drugs & Groceries, Food, Beverages & Tobacco, Telecoms, and Healthcare.


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  In terms of individual movers, Ubisoft (+6.0%) is currently the top Stoxx 600 performer after signing a deal for streaming Call of Duty and other Activision Blizzard games over the next 15 years once the Microsoft/Activision deal is complete. This comes after the UK CMA, on Microsoft (+0.4% pre-market)/Activision (+0.4% pre-market), said Microsoft has submitted a new deal for review after the original deal was blocked, triggering a new Phase 1 probe into the new restructured deal. Elsewhere, Swatch (-0.5%) and Richemont (+0.2%) are largely indecisive as the impetus from sentiment is countered by a MM decline in Swiss watch exports (-0.9% vs prev. +14%) – which marks the first monthly decline in two years. Finally, SBB (-2.0%) is softer after Fitch downgraded SBB to 'B-' and unsecured debt to 'B+' - the downgrade to Junk reflects deteriorating liquidity, in addition to unfavourable real estate and capital market conditions.

22 Aug 2023 - 09:20- Research Sheet- Source: Newsquawk