EUROPEAN EQUITY UPDATE: Turnaround Tuesday with newsflow light ahead of a plethora of central bankers

Analysis details (09:47)

A turnaround Tuesday thus far for equity markets following the steep slide the day before. Fundamentals have not changed since the prior session with inflation, hawkish central banks, China’s slowdown and the Russia-Ukrainian war all persisting. US equity futures are also feeling some reprieve from yesterday’s slump, with the NQ (+1.1%) narrowly outpacing the ES (+0.9%), RTY (+0.8%), and YM (+0.7%) after underperforming in the prior session. Citi Quant (in a note yesterday) suggested bearish positions across European and US index futures are one-sided and crowded – and thus could lead to some temporary support. The desk also noted that ETFs have experienced continuous outflows, whilst S&P 500 futures position remains around record bearish levels, with Nasdaq futures positioning similarly bearish. “Bearish positioning on Euro Stoxx 50 has gradually shifted further net-short since Ukraine conflict started and is now at levels not seen since March 2020 or earlier”, Citi Quant said. Meanwhile, analysts at Goldman Sachs warn “We are entering a new 'Postmodern' cycle in which inflation is a bigger risk than deflation. We are also likely to see greater regionalisation, more expensive labour and commodities, and larger and more active governments…Investment returns should be weaker in this cycle as higher interest rates imply smaller contributions for valuation.” Back in Europe, relatively broad-based gains are seen across the majors (Euro Stoxx 50 +1.4%; Stoxx 600 +1.1%) with a slight underperformance seen in the UK’s FTSE 100 (+0.8%). The sectors initially showed a reversal of yesterday, although this reconfigured with some of the more defensive sectors at the bottom of the bunch – alongside energy – whilst Construction, Autos, Banks, and Industrial Goods reside as the current winners, with Airbus (+3.5%) aiding the latter after its delivery numbers. In terms of individual movers, Swedish Match (+23%) shares soar after confirming a takeover bid by Philip Morris – which is said to be mulling a USD 15bln offer according to WSJ sources. Sticking with M&A, Swiss-listed Holcim (+3.8%) is supported by FT reports that India's JSW Group will make a USD 7bln bid for Holcim's Indian subsidiaries. Meanwhile, Renault (+1.2%) sees upside as China’s Geely is to buy a 34.02% stake in Renault's Korean unit for around KRW 264bln. In terms of corporate reports, Centrica (+4.5%) is bolstered after a healthy trading update and upgraded guidance. Elsewhere, Germany heavyweight Bayer (+0.4%) sees little impetus from its release, and Munich Re (+1.3%) sees some gains after topping its Gross Written Premium expectations whilst upping the FY forecast for the metric.

10 May 2022 - 09:47- EquitiesResearch Sheet- Source: Newsquawk