EU Mid-Market Update: Corporate earnings in focus

London, UK EU Mid-Market Update:Corporate earnings in focus

Tue, 25 Oct 2022 5:15 AM EST


- Changing of the guard and return of fiscal rectitude. Sunak will be appointed prime minister by King Charles III and replaces Liz Truss today and to form Govt. Pullback in UK Gilt yields seeming to suggest market approval of Sunak's appointment and hope of future financial stability

-Recession theme throughout Europe as both German IFO economists and Euro Zone bank lending survey warned of winter recession. JPMorgan and Goldman Sachs CEO's noted seeing recession risk across US and Europe. German IFO survey slightly beat estimates but sentiment still following weak European PMI's from yesterday.

-Asia closed mixed with NZX50 outperforming at +1.1%. EU indices are mixed between -0.6% and +0.8%. US futures are -0.2%. Gold -0.4%, DXY +0.1%; Commodity: Brent -1.0%, WTI -1.2%, UK Nat Gas -4.8%; Crypto: BTC -0.6%, ETH +0.5%


- US President Biden team said to be still working to set up meeting with China President Xi

- PBOC not using the daily fixing to turn around yuan depreciation Offshore Yuan (CNH) trades at a record low, follows weaker than expected yuan fixing (China PBOC set Yuan reference rate: 7.1668 v 7.1230 prior for its weakest level since 2008)

- China PBOC: To raise the cross-border macro prudential adjustment ratio for companies and financial institutions to 1.25 (prior 1.00) [**Note: move would allow Chinese companies to make more loans abroad]

- Japan Fin Min Suzuki reiterated that had no comment if Japan intervened in FX markets; Constantly communicating with US officials; Won't comment on daily FX moves and added that market moves for various reasons

- RBNZ Chief Economist Conway stated that expected inflationary pressures to ease. Early signs economy was cooling after rate increases


- BoE Dep Gov Ramsden noted that MPC was are acutely aware of impact of rate rises so far. Going to get on Oct 31st, will be very important for sustaining credibility; Having clarity on fiscal plans by Oct 31st will be really important


Fed's Evans (non-voter) stated that needed to raise rates further and hold that stance for a while; Exact stance of policy will depend on outlook and risks



Indices [Stoxx600 +0.25% at 402.86, FTSE -0.41% at 6,985.25, DAX -0.17% at 12,908.88, CAC-40 +0.34% at 6,152.24, IBEX-35 +0.49% at 7,730.73, FTSE MIB +0.10% at 22,004.00, SMI +0.89% at 10,690.10, S&P 500 Futures +0.02%]

Market Focal Points/Key Themes: European indices open generally higher but faded gains as the session wore on (UK and Germany trending into the red); sectors among those leading to the upside are consumer discretionary and technology; financials and materials sectors among those trending downwards; banking subsector under pressure following results from HSBC; software subsector boosted after earnings from SAP; earnings expected during the upcoming US session include General Motors, Coca-Cola, Michelin and Alphabet

- Consumer discretionary: Remy Cointreau [RCO.FR] -7% (earnings), Adidas [ADS.DE] -3% (said to cease Kanye West partnership)

- Financials: UBS [UBSG.CH] +5% (earnings), HSBC [HSBA.UK] -6% (earnings; CFO to depart)

- Healthcare: Novartis [NOVN.CH] -1% (earnings)

- Telecom: Orange [ORA.FR] -3% (earnings)

- Technology: SAP [SAP.DE] +4.5% (earnings), Logitech [LOGN.CH] +5% (earnings; CFO to leave)

- Materials: Covestro [1COV.DE] -3% (earnings; outlook cut)


- Euro Zone Bank Lending Survey noted that Q3 credit standards tightened further. Euro Zone Bank Lending Survey: Q3 credit standards tightened further. Expect to tighten access to credit further in the fourth quarter and see a drop in loan demand as economic growth slows and interest rates rise

- Ukraine President Zelenskiy commented at a reconstruction conference that his country needed $17B for fast recovery

- German IFO Economists noted that a winter recession was coming with Q4 GDP seen at -0.6%.. Export expectations of industry had slightly improved while retailers expectations were at new record low

- South Korea Fin Min Choo: To cut KTB bond issuance significantly into year-end (no details provided)

- Australia-Budget cut its GDP growth forecasts and raises inflation forecasts for current and next fiscal year (as anticipated). Cut the FY22/23 GDP from 3.5% to 3.25% and cut the FY23/24 GDP from 2.5% to 1.50%. It raised the FY22/23 inflation forecast from 3.0% to 5.75% and raised the FY23/24 inflation forecast from 2.75% to 3.75%

- Philippines Central Bank (BSP) Gov Medalla stated that it would match Fed rate hikes point-by-point

- IEA's Birol stated that the price cap on Russian oil still had many issues to sort out. Still huge amount of SPR oil stocks but further release was not on the agenda

**Currencies/ Fixed Income**

- USD continued to see its recent rally staff as some speculation circulating since late last week the FED might slow the pace of its tightening.

- EUR/USD trading at the 0.9860 area with focus on the Thurs ECB rate decision. Dealers pondering just how soon the central bank would reach the neutral policy range with CPI hovering around 10%.

- USD/JPY continued to hover around the 149 area after testing 145.50 earlier in the week on suspected BOJ FX intervention. Policy divergence unlikely to halt the weakening yen trend (BOJ is expected to stick to monetary stimulus at its upcoming decision (on Friday) while the Fed is likely to continue raising rates. (**Note: Yen hit a 32-year low last week at 151.94)

- Dealers noted that the China PBOC was not using the daily fixing to turn around yuan depreciation. The Offshore Yuan (CNH) traded at a record low, follows weaker than expected yuan fixing (China PBOC set Yuan reference rate: 7.1668 v 7.1230 prior for its weakest level since 2008)

***Economic Data**

- (FI) Finland Sept Unemployment Rate: 6.7% v 6.7% prior

- (JP) Japan Sept Final Machine Tool Orders Y/Y: 4.3% v 4.3% prelim

- (SE) Sweden Sept PPI M/M: 0.4% v 3.3% prior; Y/Y: 20.6% v 22.0% prior

- (ZA) South Africa Aug Leading Indicator: 123.4 v 126.2 prior

- (ES) Spai