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European Equities: Updates on Trade to Drive the Majors

Bob Mason

Economic Calendar:

Friday, 15th November

  • Italian CPI (MoM) (Oct) Final

  • Eurozone Core CPI (YoY) (Oct) Final

  • Eurozone CPI (MoM) (Oct)

  • Eurozone CPI (YoY) (Oct) Final

  • Eurozone Trade Balance (Sep)

The Majors

It was another day on the red for the European majors, with the DAX30 falling by 0.38% to lead the way down. The CAC40 fell by 0.10%, while the EuroStoxx600 ended the day with a 0.01% loss.

News of U.S – China trade talks hitting further problems weighed on the European majors on the day. Perhaps unsurprisingly, the U.S demand for China to purchase $50bn worth of U.S agri has led to a lack of progress on the day.

On Tuesday, the U.S President had stated that China would need to accept and align with the demands of the U.S. The comment suggests that Trump is unwilling to waver, which means that China will either have to accept or face more punitive tariffs…

Economic data also pressured the majors on the day. While German 3rd quarter numbers were better than forecasts, a downward revision to Germany’s 2nd quarter numbers and weak 3rd quarter numbers pressured the DAX30.

The Stats

It was a busy day on the Eurozone economic calendar on Thursday. Key stats included Germany’s 1st estimate GDP numbers for the 3rd quarter and 2nd estimate 3rd quarter GDP numbers out of the Eurozone.

Of less influence on the day were finalized October inflation numbers out of France and Spain.

According to Destatis,

  • The German economy returned to growth in the 3rd quarter, with the GDP rising by 0.1%, quarter-on-quarter. In the 2nd quarter, the economy shrank by 0.2%.

  • In the 3rd quarter, the main contribution came from consumption. There were also contributions from gross fixed capital consumption in construction and trade, with exports rising, while imports stayed level.

  • GFCF in machinery and equipment weighed, however.

  • Year-on-year, the economy grew by 1%, coming in ahead of a forecast of 0.9%. In the 2nd quarter, the economy had slowed by 0.1%.

According to Eurostat,

  • The Eurozone economy grew by 0.2%, quarter-on-quarter, which was in line with prelim and forecasts. In the 2nd quarter, the economy had also grown by 0.2%.

  • Year-on-year, the economy grew by 1.2%, coming in ahead of a prelim and forecast of 1.1%. In the 2nd quarter, the economy had also grown by 1.2%.

Earlier in the day, industrial production figures out of China tested risk appetite going into the European open.

Industrial production rose by just 4.7% in October, falling well short of a forecasted 5.4% and September 5.8%.

With stats out of Asia broadly negative, rioting in HK testing the markets and sentiment towards trade turning negative, the better than expected GDP numbers were of little consolation for the European majors.

Out of the U.S, wholesale inflation and the weekly jobless claims figures had a muted impact on the majors ahead of FED Chair Powell’s 2nd day of testimony. Powell continued to talk up the U.S economy to support the FED’s current position on policy.

In the 2nd day of testimony, there were no major surprises, however, to impact the majors going into today…

The Market Movers

For the DAX: It was a bearish day for the auto sector, as the markets responded to more negative chatter on trade. Daimler led the way down, sliding by 4.42%. BMW (0.48%), Continental (-0.52%), and Volkswagen (-0.37%) saw more modest losses.

For Daimler, the heavier sell-off came off the back of a negative outlook for 2020 and 2021. Daimler announced that profits would be adversely affected as a result of carbon requirements.

Things were not much better for the banks on the day. Deutsche Bank fell by 1.58%, with Commerzbank falling by 1.97%.

From the CAC, bank stocks managed to find support on the day. Credit Agricole led the way, rising by 0.48%. Soc Gen and BNP Paribas weren’t far behind, with gains of 0.23% and 0.38% respectively.

It was a bearish day for the autos, however. While Peugeot fell by 0.71%, Renault slid by 1.46%.

On the VIX Index

It was a 3rd day in the green out of 4 on Thursday, with the VIX rising by 0.38%. Following a 2.52% gain on Wednesday, the VIX ended the day at 13.1.

Negative news from the U.S – China trade talks supported the VIX on the day. While optimism continues to prop up the U.S majors, the threat of a collapse in trade talks remains, which continues to support the VIX.

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Key stats include finalized October inflation figures out of Italy and the Eurozone and the Eurozone’s September trade data.

We would expect the trade figures to have the greatest influence on the day.

Later in the day, U.S retail sales and industrial production figures will also provide direction.

On the geopolitical risk front, the markets will be looking for progress on trade talks. Will China succumb to pressure from the U.S and Trump’s demand to materially crank up agri imports?

In the futures market, at the time of writing, the DAX30 was up by 51.5 points, with the Dow up by 77 points. The upward moves came off the back of FED Chair Powell’s positive views on the economy.

This article was originally posted on FX Empire