EUROPEAN EQUITY UPDATE: Tentative trade for European stocks

Analysis details (09:25)

European equities (Stoxx 600 +0.2%) have kicked the week off on a tentative footing with a lack of fresh macro drivers to dictate the state of play thus far. The handover from the APAC region was mostly constructive, though some gains were capped in the absence of any major macro catalysts and as participants brace for this week’s key data (including activity data) and earnings. China's PBoC maintained its MLF rates, which analysts took as a sign of confidence in the economy, helping lift the mood in some pockets. US equity futures have been traversing sideways through the overnight session and are just above neutral. Today’s session will see the release of some regional bank earnings, the NY Fed manufacturing survey, and the NAHB housing data, though traders may be more focussed on the other events for this week, including key data and earnings. Ahead of European earnings season, Goldman Sachs notes that “Our Earnings sentiment measure (i.e., the number of earnings upgrades vs. downgrades) is just above neutral territory in Europe in contrast to other regions”. GS adds that “these elevated expectations provide little buffer for the season, compared to the last two quarters, where earnings were revised down going into the season”. In terms of a forecast, GS expects “a 5% decline in EPS for 2023 (vs. consensus at 2%) and gradual downgrades to 2023 consensus earnings throughout the year”. Elsewhere, JP Morgan is of the view that “after being bullish on Value style last year, this year we believe one should be UW Value style, and we also expect that Q1 will be marking the peak of the beta/Cyclicals rally”. JPM suggests that Growth and Defensives will be favoured in H2. Equity sectors in Europe have a positive tilt with Basic Resource names the standout outperformer. Of note for the sector, Teck Resources has reportedly been approached by Anglo American (+1.4%), Vale, and Freeport McMoRan, among others, to explore deals for its base metals business if Teck goes ahead with the split, according to Reuters sources. To the downside, Technology stocks, Financial Services and Banking names lag with the former weighed on by losses in ASM international (-3.7%) and ASML (-3.5%). In terms of individual movers, International Distributions Services (+4.9%) shares sit at the top of the Stoxx 600 after Royal Mail and the Communication Workers Union reached a negotiators’ agreement in principle over pay and employment terms. Wood Group (+7.3%) is another notable gainer after Bloomberg reported that the Co. is to engage with Apollo to see if a firm offer can be made. Traton (+4.0%) climbs following an upbeat update in which it “recorded a very strong development in the course of the first three months of 2023, which clearly exceeds market expectations”.

17 Apr 2023 - 09:25- EquitiesResearch Sheet- Source: Newsquawk