European Equities: Can the Majors Continue to Defy Gravity? Plenty Can Go Wrong…Futures point to more gains, though a light economic calendar leaves the majors exposed to the news wires and geopolitical risk.
Tuesday, 7th July
German Industrial Production (MoM) (May)
Wednesday, 8th July
EU Economic Forecasts
Thursday, 9th July
German Trade Balance (May)
It was a bullish start to the week for the European majors, with the bullish chatter across China’s state-controlled media driving risk appetite early on.
The DAX30 rose by 1.64%, with the CAC40 and EuroStoxx600 seeing gains of 1.49% and 1.58% respectively.
News had hit the wires in the early part of the day of a reported priority to foster a “healthy” bull market.
The news allowed the markets to once more cast aside negative COVID-19 news to deliver support for riskier assets. Even rising tension between the U.S and China over the last week was not enough to pin back risk appetite.
Economic data certainly contributed to the upside on the day, with stats from the Eurozone and the U.S impressing.
From last week, news of the conditional approval for the use of antiviral drug remdesivir in the EU was also taken as positive by the markets. The approval came ahead of a record-high number of COVID-19 cases from the weekend.
It was a relatively busy day on the Eurozone economic calendar on Monday. Key stats included Germany’s factory orders and the Eurozone’s retail sales figures for May. From Germany, June’s construction PMI was also in focus.
According to Destatis, factory orders rose by 10.4% in May, partially reversing a revised 26.2% tumble in April. Economists had forecast a 15% rise.
- Domestic orders increased by 12.3% and foreign orders by 8.8%, month-on-month.
- New orders from the euro area went up 20.9%, with new orders from other countries increasing by 2.0%.
- Manufacturers of intermediate goods saw new orders increase by 0.4%, with manufacturers of capital goods seeing an increase of 20.3%.
- Consumer goods new orders increased by 4.7%.
- New orders in the automotive industry saw a marked increase, though remained more than 47% lower than in February 2020.
In June, Germany’s Construction PMI rose from 40.1 to 41.3 in June.
From the Eurozone, retail sales jumped by 17.8% in May, coming in ahead of a forecasted 15% increase. In April, retail sales had slumped by 12.1%.
According to Eurostat,
- The volume of retail trade increased by 38.4% for automotive fuels, by 34.5% for non-food products, and by 2.2% for food, drinks, and tobacco.
- Luxembourg (+28.6%), France (+25.6%), and Austria (+23.3%) registered the largest increases in May.
From the U.S
It was a relatively busy day on the economic calendar, with June’s ISM Non-Manufacturing PMI in focus.
According to the latest ISM Survey, the June PMI jumped from 45.4 to 57.1, coming in well ahead of a forecasted 50.1.
The pace of job losses eased in June, with the Employment PMI rising from 31.8 to 43.1.
The Market Movers
For the DAX: It was a bullish day for the auto sector on Monday. Daimler and Volkswagen each saw gains of 2.13% to lead the way. BMW and Continental rose by 1.20% and 1.49% respectively.
It was a particularly bullish day for the banks. Deutsche Bank and Commerzbank rallied by 4.26% and by 7.49% respectively.
WIRECARD AG bucked the trend, following Friday’s 13.33% gain, with a 25.55% slide on the day.
From the CAC, it was also a bullish day for the banks. Soc Gen rallied by 3.96% to lead the way. BNP Paribas and Credit Agricole saw gains of 3.05% and 2.80% respectively.
The French auto sector also saw green on Monday. Peugeot and Renault rose by 2.87% and by 4.40% respectively.
Air France-KLM bucked the trend on the day, falling by 0.07%, while Airbus SE rose by 3.18%.
On the VIX Index
A run of 4 consecutive days in the red came to an end for the VIX on Monday. Partially reversing a 3.28% fall from Thursday, the VIX ended the day at 27.94. (The U.S markets were closed on Friday).
In spite of a broad-based market equity market rally, the VIX found support from the record number of new COVID-19 cases from the weekend.
The S&P500 rose by 1.59%, while the Dow and NASDAQ ended the day with gains of 1.78% and 2.21% respectively.
The Day Ahead
It’s a relatively quiet day ahead on the Eurozone economic calendar. Key stats include German industrial production figures for May.
Barring particularly dire numbers, we would expect the stats to have a muted impact on the majors. We can expect June’s figures to have far greater impact…
From the U.S
May’s JOLTs job openings are due out later today. With plenty of focus on labor market conditions, expect the numbers to influence late in the session.
On the geopolitical risk front, there is still plenty to catch the markets off-guard, with U.S and China tensions elevated.
A continued rise in new COVID-19 cases will also test market risk sentiment. Much will depend on whether there is a continued shift in stance on reopening the economies across the EU and the U.S, however.
At present, central bank support and optimism of a swift economic recovery continue to push the majors northwards.
The Latest Coronavirus Figures
On Monday, the number of new coronavirus cases rose by 177,554 to 11,713,082. On Sunday, the number of new cases had risen by 156,610. The daily increase was higher than Sunday’s rise and 153,341 new cases from the previous Monday.
Germany, Italy, and Spain reported 1,876 new cases on Monday, which was up from 407 new cases on Sunday. On the previous Monday, 803 new cases had been reported. Notably, Spain reported 1,244 new cases on Monday. This was the highest since 22nd May and follows news of a lockdown within the Catalonia region.
From the U.S, the total number of cases rose by 45,706 to 3,028,861 on Monday. On Sunday, the total number of cases had increased by 47,385. On Monday, 29th June, a total of 41,940 new cases had been reported.
In the futures markets, at the time of writing, the DAX was up by 52 points, with the Dow up by 71 points.
For a look at all of today’s economic events, check out our economic calendar.