European Equities: Can Trade Optimism Deliver More Highs?

Trade optimism returns to give the majors a boost. With no stats out of the Eurozone today, optimism will need to hold to provide early support.
Bob Mason
US-China Trade Deal

Economic Calendar:

Wednesday, 6th November

  • German Factory Orders (MoM) (Sep)
  • Spanish Services PMI (Oct)
  • Italian Services PMI (Oct)
  • French Services PMI (Oct) Final
  • German Services PMI (Oct) Final
  • Eurozone Markit Composite PMI (Oct) Final
  • Eurozone Services PMI (Oct) Final
  • Eurozone Retail Sales (MoM) (Sep)

Thursday, 7th November

  • German Industrial Production (MoM) (Sep)
  • ECB Economic Bulletin  

Friday, 8th November

  • German Trade Balance (Sep)
  • French Non-Farm Payrolls (QoQ) (Q3)

The Majors

It was a particularly bullish start to the week for the European majors, with the DAX30 rallying by 1.35% to lead the way. The EuroStoxx600 and CAC30 weren’t far behind, with gains of 1.00% and 1.08% respectively.

Comments from the U.S administration on Sunday drove the European majors northwards on Monday.

While the U.S administration stated that they will be looking for a new venue to sign the phase 1 agreement, it was the plan to grant licenses to permit U.S firms to sell to Huawei Technologies that was the key.

With geopolitical risk abating at the start of the week and economic data delivering few shocks, there was little to spook the majors on the day.

The Stats

It was a busy day on the Eurozone economic calendar on Monday. October Manufacturing PMI numbers out of Spain and Italy provided direction going into the European session.

Finalized October Manufacturing PMIs out of France, Germany and the Eurozone also influenced later in the day.

On the PMI numbers

Spain’s Manufacturing PMI fell from 47.7 to 46.8 in October. Economists had forecast a rise to 48.2.

Italy’s Manufacturing PMI fell from 47.8 to 47.7 in October, coming in ahead of a forecasted decline to 47.6.

France’s finalized Manufacturing PMI came in at 50.7, up from a prelim 50.5 and September 50.1

Germany’s finalized Manufacturing PMI stood at 42.1, up from a prelim 41.9 and September 41.7.

The Eurozone Manufacturing PMI was revised from a prelim 45.7 to 45.9. In September, the PMI had stood at 45.7.

According to the Eurozone’s October Markit Survey,

  • The Final survey revealed that there was sustained weakness in output, new orders, and purchasing.
  • Also of concern was an acceleration in job shedding to the fastest rate since the beginning of 2013.
  • Perhaps of greater concern was a sharp slide in new order volumes.
  • Weakness in demand was reported across domestic and international markets.
  • On the international front, Austria and Germany reported sizeable declines in new export orders.
  • Germany remained the main drag on the manufacturing sector in the region, with Austria also seeing a sharp deterioration in October.
  • Thrown into the mix was Spain’s manufacturing sector, with the PMI falling to a six-and-a-half-year low.

By ranking, Greece came in at the top of the table, in spite of the PMI falling to a 4-month low 53.5.

France (50.7), Ireland (50.7), and the Netherlands (50.3) barely budged in October.

Italy (47.7), Spain (46.8), Austria (45.5), and Germany (42.1) all contracted, with Germany sitting at the bottom of the table.

From the U.S, factory orders failed to impact despite a 0.6% slide in September, which was worse than a forecasted decline of 0.5%. Orders had fallen by 0.1% in August.

The Market Movers

For the DAX: It was a mixed day for the auto sector, in spite of the positive sentiment towards trade. Continental led the way, rallying by 3.84%. Volkswagen and BMW and also made solid gains, rising by 2.93% and by 2.71% respectively. Daimler bucked the trend on the day, falling by 0.3%.

Banks found strong support at the start of the week. Commerzbank rallied by 4.61%, with Deutsche Bank up by 4.23%.

From the CAC, bank stocks also found support. Soc Gen and BNP Paribas led the way, rising by 2.73 % and by 2.71% respectively, with Credit Agricole up by 1.87%.

It was also bullish for the autos. Peugeot rallied by 3.38%, while Renault rose by a modest 0.81% on the day.

On the VIX Index

The VIX Index saw green at the start of the week, rising by 4.31%. Partially reversing a 6.96% fall from Friday, the VIX ended the day at 12.8

The upside for the VIX came in spite of the U.S majors hitting fresh highs on Monday.

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 direction on the day.

A lack of stats leaves the majors in the hands of economic data out of the U.S, corporate earnings and geopolitics.

Economic data from the U.S included September trade data, JOLTs job openings and finalized October service sector PMIs.

Of greater influence, however, will be the market’s preferred ISM Non-Manufacturing PMI. Forecasts are market risk positive.

Through the early part of the day, any further chatter on trade will also provide direction.

In the futures market, at the time of writing, the DAX30 was up by 9.5 points, with the Dow up by 44 points.

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