European Equities: A Lack of Stats Leaves the Focus on Jackson Hole

There are no material stats due out of the Eurozone to distract the majors from today’s FED Chair Powell speech… Expect a strong response.
Bob Mason
Light Board

The Majors

The European majors saw red for the 2nd time in the week. Leading the way down was the CAC40, which fell by 0.87%. For the DAX30 and EuroStoxx600, the pair saw more modest losses of 0.47% and 0.4% respectively on the day.

In spite of better than expected economic data out of the Eurozone on the day, recession fears plagued the European markets.

Yet another yield curve inversion added to the negative sentiment towards the economy, supported by the ECB’s monetary policy meeting minutes that signaled a call for action. Thursday’s 2-year – 10-year yield curve inversion came off the back of a brief inversion on Wednesday in response to the FOMC meeting minutes.

On the geopolitical front, sentiment towards the U.S – China trade war continued to weigh. There was some respite on Brexit, however, with Macron leaving the door ajar on further talks to tinkle with the agreement…

The Stats

It was a particularly busy day on the Eurozone economic calendar on Thursday. Key stats included prelim August private sector PMI numbers out of France, Germany, and the Eurozone.

According to the latest Markit surveys,

  • The French Manufacturing PMI bounced from 49.7 to 51.0, which was better than a forecasted fall to 49.5.
  • France’s Services PMI rose from 52.6 to 53.3, which was better than a forecasted fall to 52.4.
  • Germany’s manufacturing PMI rose from 43.2 to 43.6, which was better than a forecasted fall to 43.1.
  • The German Services PMI fell from 54.5 to 54.4. Economists had forecast a fall to 54.0.
  • For the Eurozone, the Composite PMI came in at 51.8, which was up from a July 51.5.

According to the August Eurozone Markit Survey,

  • The Eurozone’s manufacturing PMI Output Index rose from 46.9 to a 2-month high 47.8, supporting a 2-month high Manufacturing PMI of 47.0.
  • Out of Germany, new orders fell by the greatest extent since Apr-13, with pessimism at its worst in the manufacturing sector in over 7-years. Across the Eurozone, the sentiment was at its weakest since May-13.
  • For the Eurozone, new export orders, which continued to pin back overall new orders, were down for an 11th consecutive month.
  • France provided some support, with both output and new orders in the manufacturing sector returning to growth.
  • There was reportedly little change across the rest of the Eurozone, where falling manufacturing output outweighed service sector expansion.

Later in the day, the ECB released its monetary policy meeting minutes from 25th July meeting.

Talk of delivering stimulus and concerns over the economic outlook were in line with market expectation. There was some debate over how to deliver a stimulus, however. From the minutes, it was evident that easing is on its way next month.

From the U.S, August private sector PMI numbers also provided direction. The U.S manufacturing sector joined Germany in contraction, the PMI fell from 50.4 to 49.9. Service sector activity also slowed, with the PMI falling from 53.0 to 50.9. The PMI figures were yet more red flags for the FED to consider…

The Market Movers

From the DAX, Deutsche Bank was amongst the best performers on the day, rising by 1.83% in spite of recession fears. Commerzbank was close behind with a 1.81% gain. From the auto sector, Continental and Daimler led the way with gains of 1.36% and 0.68% respectively. Volkswagen and BMW saw more modest gains of 0.48% and 0.40% respectively.

On the day, ThyssenKrupp was the leader of the pack, however, surging by 6.96%. The bounce came in response to news of the company filing a complaint against EU’s attempts to block a planned JV with Tata Steel.

From the CAC, the banking sector also found support despite a sea of red. Soc Gen led the way with a 2.08% rally. Credit Agricole and BNP Paribas trailed with 0.84% and 0.83% gains respectively.

Renault and Peugeot also found support. The pair ended the day up by 1.17% and 0.31% respectively.

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. There were no material stats due out of the Eurozone to provide the majors with direction on the day.

A lack of stats will leave the markets to respond to speeches from the Jackson Hole Symposium and to consider what lies ahead, politically and economically. FED Chair Powell’s scheduled speech from Jackson Hole is the main event of the day.

While the markets are expecting the FED Chair to want to avoid riling the markets, the promise of further easing will be needed to support the majors.

From the U.S, economic data is on the lighter side and unlikely to provide direction, with new home sales figures due out.

Ahead of the FED Chair Powell Speech, U.S Treasury yield spreads will need monitoring…

In the futures markets, at the time of writing, the DAX was up by 48 points, while the Dow Mini was up by 37 points.

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