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The Early

26 Apr 2018 07:15

Markets: bigger test

A much more challenging session yesterday for European equities following the wobble in the US on Tuesday. Losses were trimmed late in the session, perhaps reflecting some better earnings news (notably from Kering and Credit Suisse), leaving most of the index benchmarks with declines of less than -1%. Technology was helped by the ST Micro numbers among the Euro Stoxx sectors, while basic materials -1.55% and oil & gas -1.50% lagged.

The retreat in the UK All-Share index ended with it dipping back below the key 200-day moving average line by the close; chemicals -2.21%, electronics -1.91%, pharmaceuticals -1.91% and mining -1.85% all struggled as the consumer staples rallied (tobacco +2.97%, food producers +1.27%. The day's corporate news (Comcast/Sky, Takeda/Shire, Whitbread) had little broader impact. A tough day for the UK mid/small caps, with all 12 of our PHySiCS sector indices ending down, notably health care -1.41%, and not much direction from the style factors.

Overnight. Following another shaky start, US indices were able to mount a rally thanks to some more supportive earnings news, including Boeing and (after hours) Facebook. The major benchmarks closed near the flat line with energy +0.81% and telecoms +0.81% outperforming. The overall Q1 EPS beat rate, with nearly a third of S&P companies having reported numbers, is running at an impressive 81%. Asian equities proved more resilient to the continued climb in US yields, and the tech stocks were supported by Samsung's numbers. Oil remained firm on the prospect of further output cuts. European indices should rebound first thing.

Early numbers. Dow +0.25%, S&P +0.18%, NASDAQ -0.05%, VIX 17.84; US 10 yr 3.03%; Nikkei +0.41%, Hang Seng -0.98%, Shanghai Comp -1.17%; £=$1.3941, £=€1.1448, Brent $74.44/bbl, Gold $1323.72; FTSE 100 indication +5 (at 6.40 UK).

Macro: prepare for the dove

In an inevitable response to the recent run of weak activity data, the German government trimmed its own estimate of GDP growth this year to +2.3% YoY (from +2.4% YoY). the accompanying commentary remained upbeat with the overall situations described as "buoyant" and manufacturing still the driving force, despite the questions over global trade. In the light of recent volatility in markets and the softer tone of the macro news, with Eurozone data surprisingly consistently to the downside, expect ECB President Draghi to maintain the dovish message in today's press conference.

Today's events. ECB rate decision (12.45) and press conference (1.30); US Mar durable goods orders (1.30) +1.6% MoM, core non-defense ex-aircraft +0.6% MoM.

Ian Williams
Economics & Strategy
020 7418 8819

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