European Equities: Brexit, Italy and Trade Put Geopolitics Front and Center

The Majors

It was a positive start to the month of September for the majors. The EuroStoxx600 led the way, gaining 0.32%, with the CAC40 and DAX30 rising by 0.23% and 0.12% respectively.

Outside of the stats, it was a slow start to the week in spite of China’s manufacturing sector returning to growth in August. China’s Caixin Manufacturing PMI reflected a return to expansion. This was in contrast to China’s NBS Manufacturing PMI from the weekend that continued to reflect a contraction in the sector.

The U.S rolled out fresh tariffs over the weekend that tested market resolve in the early part of the day. In response to weak stats over the weekend and the latest tariffs, the PBoC set the midpoint at CNY7.0883 against the Greenback in response. This was the lowest level since a previous low 7.0879 set back in 2008.

On the geopolitical front, Brexit and UK politics grabbed the headlines through the day. Boris Johnson announced that a General Election would be held on 14^th October should MPs block a no-deal Brexit later today.

The Stats

It was a busy day on the Eurozone economic calendar on Monday.

Key stats included August manufacturing PMI figures out of Spain and Italy, together with finalized numbers out of France, Germany, and the Eurozone.

Spain’s Manufacturing PMI rose from 48.2 to 48.8 in August, coming in ahead of a forecasted 48.5.

Italy’s Manufacturing PMI increased from 48.5 to 48.7 in August, coming in ahead of a forecasted 48.5.

Also on the positive was an upward revision to the French PMI. The finalized PMI came in at 51.1, up from a prelim and forecast 51.0 and July 49.7.

On the negative front, Germany’s manufacturing PMI was revised downwards from 43.6 to 43.5. In July, the PMI stood at 43.2.

The Eurozone’s Manufacturing PMI came in at 47.0, which was in line with prelim and forecast. In July the PMI had stood at 46.5.

According to the finalized Markit Survey,

• Employment declined for a 4^th consecutive month in August, as production and new orders fell further and confidence fell to the lowest level since Nov-12.
• France, Greece and the Netherlands were the only member states to report an increase in new orders. In contrast, Germany reported the largest decline in new orders.
• Greece’s manufacturing PMI hit a 4-month high 54.9 to sit at the top of the PMI table.
• The Netherlands and France came 2^nd and 3^rd respectively, with 3-month and 2-month highs.
• Ireland’s PMI slid to a 76-month low 48.6, while Germany’s 2-month high 43.5 left the Eurozone’s economic powerhouse at the bottom of the table.

With the U.S markets closed on Monday, there were no material stats to provide direction late in the session.

The Market Movers

From the DAX, Deutsche Bank was amongst the top performers on the day, gaining 0.9%, while Commerzbank fell by 1.05%.

It was also a mixed day for the auto sector. BMW (-0.76%), Continental (-0.16%) and Daimler (-0.36%) saw red, whilst Volkswagen eked out a 0.15% gain. The sector responded to the fresh tariffs on Chinese goods.

From the CAC, it was also a mixed day for the banks. BNP Paribas closed out the day with a 0.02% gain. Credit Agricole and Soc Gen fell by 0.34% and 0.02% respectively. From the auto sector, Renault and Peugeot fell by 0.49% and 0.31% respectively.

On the VIX Index

The VIX was closed on Monday, with the U.S on holiday in recognition of Labor Day.

The Day Ahead

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

The lack of stats will leave the majors in the hands of economic data out of the U.S, which includes August manufacturing PMI numbers.

Outside of the numbers geopolitics will continue to influence as will sentiment towards the global economic outlook.

Throughout the day, the markets will need to monitor any chatter from Beijing and Washington, Italy, and the UK Parliament.

Doubts over whether trade talks will take place weighed on the U.S futures markets early this morning. In the UK Parliament, Pro-Remainers will look to block a no-deal Brexit that would lead to a snap general election if successful. Italian politics is also in focus. The Five Star Movement is voting on whether to form a coalition government with the Democratic Party.

In the futures markets, at the time of writing, the DAX was up by 16.5 points, while the Dow Mini was down by 80 points.