EUROPEAN EQUITY UPDATE: Tentative trade across stocks as the clock ticks down to the FOMC

Analysis details (09:30)

Bourses in Europe kicked off the mid-week session with mild and contained gains following a mixed APAC handover and in the run-up to the November FOMC announcement. The Fed is expected to hike its target Fed Funds range by another 75bps to 3.75-4.0%, with a firm focus on the guidance and Powell's presser as the FOMC looks to step down the pace of tightening as it approaches the terminal rate, roughly in the 4.5-5.0% area. Ahead of this, US equity futures post mild gains but briefly dipped into flat/negative territory heading into the European cash open, although the NQ remains the relative and modest outperformer. Analysts at Barclays believe that the market optimism surrounding a less hawkish via a “pivot narrative” Fed is misplaced, with the bank suggesting “peak hawkishness may be near, as hinted by central banks in China and Europe, but inflation is just too high for the Fed to loosen financial conditions”, and “Fed cutting rates has historically been a pre-condition to start a new bull market.” Meanwhile, analysts at abrdn believe the SPX could rally as much as 20% if the Fed signals a pivot. “A pivot would include the Fed stating there are signs of below-trend growth, softening in labor market conditions and inflation moving back to 2%”, abrdn specifies. Back in Europe, a tentatively positive tone was initially observed, but gains later dissipated as the EZ manufacturing PMIs were revised lower across the board, with the commentary flagging further recessionary concerns coming to fruition, whilst a New York Times article suggested Senior Russian military leaders recently had conversations to discuss when and how Moscow might use a tactical nuclear weapon in Ukraine, albeit, Russian President Putin was not part of the talks and intelligence about the conversations was circulated inside the US government in mid-October, according to sources. The sectoral performance in Europe is mostly higher, with the market breadth narrow and with no overarching themes. Healthcare resides at the top of the bunch as GSK (+1.1%) holds onto gains after topping earnings expectations and raising its FY guidance. Consumer Products, Basic Resources, and Banks are also among the top performers, whilst Real Estate, Food & Beverages, Tech, and Utilities sit at the bottom of the pile at the time of writing. In terms of other movers, shipping giant Maersk (-4.4%) fell despite topping expectations on key earnings metrics, with the downside spurred by the firm cutting its FY22 global contained demand forecast whilst noting that a slowdown in the global economy will lead to a softer market in the ocean. Elsewhere, Novo Nordisk (+4.3%) and Next (+2.8%) sit towards the top of the Stoxx 600 following earnings and a trading update respectively.

02 Nov 2022 - 09:30- Research Sheet- Source: Newsquawk