European Equities: Another Quiet Day on the Stats Could Test the Majors

The Majors

The European majors kicked off the week with a bang. Leading the way was the CAC40, which rallied by 1.34% to reverse last week’s 0.51% loss. Close behind was the DAX30, which rose by 1.32%, reversing last week’s 1.12% slide. The EuroStoxx600 saw a more modest 1.14% gain on the day.

With economic data on the lighter side throughout the day, the market focus was on trade, with sentiment toward monetary policy playing a hand.

News of the U.S administration giving Huawei a 90-day extension gave the majors a boost. The extension allows the telco giant to continue to buy from U.S companies.

As central banks look to deliver much-needed support, governments also stepped in. German finance minister Scholz talked of fiscal support to avert any economic crisis late in the weekend.

With the German government delivering much-needed support, China’s PBoC also delivered, with reform to lending rates. Lower interest rates will reduce the cost of funds for Chinese firms, easing pressure on cash flow.

Monetary policy stimulus, fiscal stimulus, and a U.S administration taking a softer approach in the U.S – China trade war also delivered strong gains in the U.S.

The NASDAQ and S&P500 led the way with 1.35% and 1.21% gains. It was a more modest 0.96% rise for the Dow.

The Stats

On the data front, the Eurozone’s July inflation figures provided direction in the early part of the European session. The annual rate of core inflation came in at 0.9%, which was in line with prelim and forecast. The annual rate of inflation slipped to 1.0%, falling short of a prelim and forecast 1.1%.

Month-on-month, consumer prices fell by 0.5%, reversing a 0.2% rise in June. Economists had forecast a 0.4% decline.

According to Eurostat,

• The lowest annual rates of inflation were registered in Portugal (-0.7%), Cyprus (0.1%) and Italy (0.3%).
• Latvia and Slovakia reported the highest annual rate of inflation, both at 3.0%.
• In July, Services contributed 0.53 percentage points to inflation, with food, alcohol & tobacco contributing 0.37 percentage points.
• The annual rate of inflation was down from 2.2% a year ago…
• Month-on-month, the annual rate of inflation fell in 15 member states while rising in 11.

With the annual rate of core inflation continuing to sit well below the ECB’s target, the door remains open for policy easing next month.

From the U.S there were no material stats released to influence the majors on the day.

The Market Movers

From the DAX, Infineon Tech led the way, rallying by 3.14% off the back of the Huawei 90-day extension. An easing in trade tensions also supported ThyssenKrupp, which rose by 1.93%.

Deutsche Bank was amongst the top performers for a 2^nd consecutive day, gaining 1.77%. Commerzbank saw a more modest 1.08% gain.

For the auto sector, Daimler and Volkswagen were the best performers. The pair rose by 1.50% and by 1.38% respectively. BMW and Continental ended the day up by 0.85% and 0.43% respectively.

From the CAC, the banking sector found further support. Soc Gen led the way, rallying by 1.4%. Credit Agricole and BNP Paribas saw more modest gains of 0.49% and 0.46% respectively.

Renault and Peugeot found strong support on the day, with gains of 1.76% and 1.89% respectively.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Key stats on the day are limited to the German wholesale inflation figures.

We would expect the figures to have a muted impact on the European majors on the day.

With no material stats due out of the U.S later in the day, the focus will continue to be on the U.S – China trade war, and fiscal and monetary policy.

China had threatened retaliatory measures following the U.S administration’s delay on trade tariffs last week. It remains to be seen whether the Huawei extension will incentivize the Chinese government to ramp up agri imports from the U.S…

In the futures markets, at the time of writing, the DAX was down by 33.5 points, while the Dow Mini was down by 34 points.