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European Equities: A Tory Victory and A U.S – China Trade Agreement!

There are no stats from the Eurozone to influence, leaving the majors in the hands of Trump who delivers, with exit polls pointing to a Tory victory.
Bob Mason
Financial stock market numbers and forex trading graph, business and stock market data, financial investment concept on bull and bear shapes symbols background.

Economic Calendar:

Friday, 13th December 2019

  • Spanish CPI (YoY) (Nov) Final
  • Spanish HICP (YoY) (Nov) Final

The Majors

It was another bullish day for the European majors, which saw green for a 2nd consecutive day, with the DAX30 rising by 0.57% to lead the way. The CAC40 and EuroStoxx600 weren’t far behind with gains of 0.40% and 0.33% respectively.

Twitter delivered the upside on the day, with a Trump tweet late on Thursday announcing that a trade deal was close leading to a broad-based market rebound.

The tweet came off the back of reports that the U.S administration was not only going to cancel the 15th December tariffs, but also half existing tariffs on $360bn worth of Chinese goods.

The majors had been in the red ahead of the tweet, however, though the losses were minor in spite of uncertainty as Britain headed to the polls.

While the UK opinion polls had Johnson ahead going into Thursday’s vote, it wouldn’t be the first time that they were wrong…

The Stats

It was a relatively busy day on the Eurozone economic calendar on Thursday. Key stats included October industrial production figures for the Eurozone. German and French finalized inflation numbers for November were also released.

According to Eurostat,

  • Industrial production fell by 0.5% in October, month-on-month, which was in line with forecast. In September, production had fallen by a revised 0.1%.
  • The production of capital goods slid by 2.0%, with energy production falling by 0.7%.
  • Partially offsetting the slide were increases in the production of non-durable consumer goods (0.4%), intermediate goods (0.6%) and durable consumer goods (1.9%).
  • Greece (-2.6%) recorded the largest fall in production, while Portugal saw industrial production rise by 3.1% to lead the way.
  • Year-on-year, industrial production fell by 1.7%, with Germany seeing the largest slide, falling by 6.3%.

Finalized German and French inflation figures for November had a muted impact on the majors on the day.

The ECB

While the markets had correctly anticipated a hold on policy, ECB President Lagarde’s first press conference garnered plenty of attention.

Key points from the press conference included:

  • Growth revised down from 1.2% to 1.1% for 2020.
  • Risks tilted to the downside.
  • Inflation to average at 1.6% through to 2022.
  • In 2022, economic growth forecasted to rise to 1.4%.
  • Accommodation still required to support inflation.
  • Other policy areas must contribute to reducing vulnerability, including structural policies.
  • On fiscal policy, the outlook remains mild expansionary.
  • Member states with a means to loosen the purse strings must do so.
  • ECB’s focus on credit growth will make lending numbers all the more influential…

For the European majors, a downward revision to growth forecasts was negative.

From the U.S

The markets also responded to the FOMC’s economic projections released overnight on Wednesday. Any major upside was limited, however, with the UK General Election and mixed sentiment towards trade influencing early in the session.

The Market Movers

For the DAX: It was a bullish day for the auto sector. Continental rallied by 1.77% to lead the way. Daimler and BMW trailed with gains of 0.88% and by 0.80%, while Volkswagen saw a more modest 0.64% gain on the day.

It was also a bullish day for the banks, with Commerzbank and Deutsche Bank rallying by 5.00% and by 3.26%, respectively.

From the CAC, it was a bullish day for the banks. Soc Gen led the way, rallying by 2.92%, with BNP Paribas and Credit Agricole up by 2.48% and by 2.05% respectively.

Improved sentiment towards trade also supported the French Auto sector. Peugeot and Renault rose by 2.43% and by 2.66% respectively.

On the VIX Index

The VIX saw red for a 3rd consecutive day, falling by 7.0% on Thursday. Following a 4.40% decline on Wednesday, the VIX ended the day at 13.9.

Once more the VIX gave up gains from earlier in the day, with updates on trade talks from the U.S administration weighing on the day.

Positive updates from the U.S President, via Twitter, provided much-needed support to the equity markets that had struggled at the open.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Economic data due out of the Eurozone is limited to finalized November inflation numbers out of Spain.

The lack of stats leaves the market focus on the outcome of the UK General Election and updates from the U.S and China on trade.

News of an in-principal U.S – China phase 1 agreement will set the majors on their way at the open.

A key exit poll showing a Johnson majority victory added to the early fervor in the early hours of this morning, supporting a bullish open for the European majors.

Later in the day, retail sales figures from the U.S will likely be brushed aside.

In the futures markets, at the time of writing, the Dow Mini was up by 226 points.

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