EUROPEAN EQUITY UPDATE: Tentative trade with mild gains as attention falls on US inflation

Analysis details (09:27)

Equities in Europe tread water with modest gains following a relatively mixed APAC lead, which saw China’s return from its long weekend. Gains in Chinese markets were contained after further COVID restrictions - including in the city of Sanhe near Beijing and with Shijiazhuang city in Hebei also locking down a district. Nonetheless, all eyes are now on the US CPI metrics, as the data release will form a key part of building expectations around the FOMC’s September 21st confab after a “goldilocks” jobs report in August. Traders will be monitoring the impact the data has on expectations of the cumulative amount of hikes the Fed will fire this cycle; the more constructive tone of macro indicators in Q3 has seen market expectations of the terminal rate rise from the 3.50-3.75% range when the quarter began, to the current 3.75-4.00% range, which could be seen by the end of this year (Click here for the Newsquawk preview). US equity futures are edging higher in early European trade with a broad-based performance seen across the ES, NQ, YM, and RTY. BofA released its September Global Fund Manager survey (FMS) in which it revealed global growth expectations are near all-time lows, with a net 72% expecting a weaker economy next year, a net 79% expecting lower inflation in the next 12 months, with the top 3 tail risks for investors being inflation, central bank hawks, and geopolitics. BofA suggested that max bear sentiment and benign data have resulted in SPX retests and fails of 4,300 - BofA said it is remaining fundamentally and patiently bearish. Back to today’s session, bourses in Europe are holding an upside bias (Euro Stoxx 50 +0.5%; Stoxx 600 +0.4%) with varying gains seen across the individual indices. Sectors are mostly higher with no overarching theme or bias. Consumer Products lead the gains closely followed by Travel & Leisure and Basic Resources, whilst the other side of the spectrum sees Retail at the bottom followed by Personal Care and Real Estate. In terms of individual movers, Ocado (-12.5%) plumbs the depths after Retail Sales printed beneath forecast and highlighted cost headwinds in Q4 - “consumers are shopping smaller baskets as are seeking value-for-money items as they respond to inflation”, Ocado said. As a result, peers Tesco (-3.3%) and Sainsbury’s (-2.6%) are declining in sympathy. Elsewhere, the banking sector is mixed with UK banks under mild pressure with the BoE reportedly forming a new stress-test scenario that will see a deep economic recession spurred by rising energy bills, according to the Guardian citing sources. However, Swiss-listed UBS (+1.3%) bucks the trend after as the Co. anticipates its share repurchase programme this year will exceed USD 5bln, and sees 2022 dividend at USD 0.55/shr (prev. USD 0.51/shr).

13 Sep 2022 - 09:30- Research Sheet- Source: Newsquawk

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