Equity brief: Europe sees weak earnings in bag, hence the drag

Stock market snapshot as of [11/7/2019 4:04 PM]

  • The day after the Fed wafted—with Powell-comments and FOMC minutes— a confirmation that it remains highly likely to cut by 25 basis points in July, European stocks still aren’t as cheered as those in the U.S. and Asia
  • Both Dow and S&P 500 opened with highly significant, albeit largely symbolic moves to the ‘psychological’ levels of 27,000 and 3,000 respectively. The jury’s out as to whether their hesitant rallies can keep the markets above those round numbers into the close. In context though, they have marked investors’ positive response to the Fed’s signal nonetheless
  • As per a day ago, European markets contrast with a more mixed flavour. DAX, CAC and FTSE post anaemic gains or small losses. FTSE MIB continues its post-populism recovery, rising 0.6%. This after ECB minutes showed a strong consensus for cuts this year. Germany’s upwardly revised inflation data that lifts the euro (and a point against rate cuts) may be a bone of contention. The main drag however, remains earnings pessimism. This matches sentiment on forthcoming results Stateside, but unlike on Wall Street, there’s a sense that European large-caps may struggle to outpace even the low-ball forecasts they’ve been handed. With the broad STOXX 600 up a decent 15% for the year after last week’s 2019 high, plus with policy stimulus undefined, such sentiment may only point the market lower in the second half

Corporate News

  • Illustrating Thursday’s lack of enthusiasm, Europe’s large-cap gainer was Reckitt Benckiser, rising around 2.5% near close after agreeing a $1.4bn fine. The penalty is linked to formerly owned opioid maker, Indivior. That mid-cap itself rose as much as 40%. Neither are entirely out of the woods, lawsuit-wise
  • Among U.S. shares, another notable 2019 laggard, insurer United Health also took the spotlight with a 5% gain whilst select rival insurers also rallied. Pharma and biotech stocks mostly went the opposite direction. The White House has just pulled the plug on a proposed drug rebate overhaul but there’s speculation that Washington may look to target makers of high-priced drugs instead
  • Retail is edging back into view in a negative way. Both GameStop and Bed Bath & Beyond fell hard, after a necessary plan to sell new shares and after Wall Street turned sceptical on forecasts, respectively

Upcoming economic highlights

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.