European Equities: Are the Majors Running out of Gas?

It’s looking a bit bearish for the day ahead. Trade war tension continues to linger, which could test investor resilience on the day.
Bob Mason
Light Board

Economic Calendar:

Wednesday, 12th June

  • French Nonfarm Payrolls q/q (Q1)
  • Spanish CPI y/y (May) Final
  • Spanish HICP y/y (May) Final

Thursday, 13th June

  • German CPI m/m (May) Final
  • Eurozone Industrial Production m/m (Apr)

Friday, 14th June

  • French CPI m/m (May) Final
  • French HICP m/m (May) Final
  • Italian CPI m/m (May) Final

The Majors

It was another day in the green for the European majors. The DAX30 played catch-up, leading the day with a 0.92% rally. The CAC40 rose by 0.48% to make it a 0.83% gain for the current week, with the EuroStoxx600 up by 0.69%.

A lack of material economic data out of the Eurozone was positive for the majors, with the latest U.S President Trump threat of more tariffs having a muted impact on the majors.

The U.S President is looking to force China Premier Xi to attend the G20 Summit at the end of the month. Trump has threatened China with tariffs on an additional $300bn worth of Chinese goods should Xi fail to attend…

Prospects of a near-term FED rate cut, China stimulus, and the U.S – Mexico deal continued to provide support on Tuesday. It was quite a different story for the U.S majors, which struggled.

The Stats

There were no stats to provide direction for the majors on the day. The Asian markets provided support going into the European session.

Out of China, further government stimulus supported the Asian markets earlier in the day, with CSI300 rallying by 3.01%.

The Market Movers

From the DAX, the Auto sector was mixed on the day. Continental was amongst the top performers, rallying by 1.75%. Daimler (+0.85%) and Volkswagen (+0.35%) were also on the rise, while BMW bucked the trend, falling by 0.66%.

The banking sector found support, with Deutsche Bank ending the day up 0.93%. Commerzbank saw a more modest 0.8% rise on the day.

From the CAC40, BNP Paribas and Credit Agricole gained just 0.18% and 0.05% respectively, while Renault rose by 1.16%.

The Day Ahead

Spanish finalized inflation figures and French nonfarm payroll numbers for the 1st quarter are due out later this morning.

We can expect the numbers to have a muted impact on the European majors through the day. ECB President Draghi, speaking this morning, could influence should there be any negative chatter on the economic outlook.

U.S inflation figures due out later this afternoon could weigh should the numbers come in ahead of expectations.

With support for the majors coming from hopes of a FED move, inflation would need to soften to support the shift in sentiment towards monetary policy.

We’ve seen the majors find support on China stimulus and the hopes of a rate cut by the FED. Expectations are that the ECB would follow the FED should there be any policy easing. While that’s a positive down the road for the majors, risk sentiment could be tested should trade war tensions between the U.S and China build ahead of the G20.

Trump’s latest threat is likely to further test China’s willingness to play ball with the U.S.

At the time of writing, the DAX was down by 42 points. The Dow Mini was down by 28 points.

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