European Equities: Economic Data and Brexit Remain in Focus

The Majors

Wednesday delivered a rebound for the European majors. Leading the way was the CAC40, which rose by 1.21%, with the DAX30 and EuroStoxx600 gaining 0.96% and 0.89% respectively.

Outside of the economic data, which was market positive, a shift in sentiment towards geopolitical risk provided further support.

On Tuesday, MPs took control of Parliament, which yielded legislation to prevent the British PM to pull Britain out without a deal.

From the EU, news of Five Star Movement members voting, by a vast majority, in favor of a coalition with the Democratic Party was also a positive.

And from Asia, news hitting the wires of HK Leader Carrie Lam announcing plans to withdraw the extradition bill got things moving in the early part of the day.

The Stats

It was a particularly busy day on the Eurozone economic calendar on Wednesday. August service sector PMI numbers out Spain and Italy and finalized numbers out of France, Germany, and the Eurozone provided direction.

Service PMIs

Spain’s service PMI rose from 52.9 to 54.3, coming in well ahead of a forecasted 53.0.

The Italian service PMI fell from 51.7 to 50.6, which was worse than a forecasted 51.6.

France’s finalized PMI came in at 53.4, upwardly revised from a prelim 53.3. In July, the PMI had stood at 52.6.

The German service PMI came in at 54.8, upward revised from a prelim 54.4 and up from a July 54.5.

At the Eurozone level, the service PMI came in at 53.5, upwardly revised from a prelim 53.4. The Eurozone composite was also revised upwards, from 51.8 to 51.9. In July, the composite had stood at 51.5. According to the finalized August composite PMI survey,

• France performed the best at a national level, with the August composite PMI hitting a 9-month high 52.9.
• Spain also saw solid growth with the composite rising to a 4-month high 52.6.
• Ireland and German ranked 3^rd and 4^th respectively, with the two seeing modest growth.
• Italy trailed, with the composite PMI falling to a 3-month low 50.3.
• The euro area private sector reported both an increase in new work and a 6^th consecutive monthly fall in backlogs.
• While new work increased, the rise was only marginal, with manufacturers and economies exposed to trade continuing to suffer.
• Hiring across the private sector was at its slowest pace since March 2016.

Consumer Spending

Eurozone July retail sales figures failed to pin back the majors on the day, in spite of retail sales falling by 0.6%, month-on-month. Retail sales had risen by 1.1% in June.

According to Eurostat,

• The volume of retail trade decreased by 1% for non-food products and by 0.3% for food, drinks, and tobacco.
• Automotive fuel sales remained unchanged.
• By member state, Germany (-2.2%) and Belgium (-1.4%) reported the largest fall in sales, while Ireland (+1.9%), Slovenia (+1.2%), and Malta (+1.0%) reported the largest increases.
• Year-on-year, retail sales increased by 2.2%, with only Slovakia (-0.8%) seeing a fall in sales.

From the U.S, July trade data had a muted impact on the majors late in the session.

The Market Movers

From the DAX, Wirecard and ThyssenKrupp led the way in the rebound, surging by 4.16% and by 3.82% respectively. From the auto sector, Continental and Daimler were also amongst the leading stocks, rising by 3.57% and 2.23% respectively. BMW and Volkswagen saw more modest gains of 1.36% and 1.56% respectively.

The shift in risk sentiment also provided strong support for the banks. Deutsche Bank rose by 2.08%, with Commerzbank up by 2.62%.

From the CAC, it was also a bullish day for the banks. Soc Gen and BNP Paribas led the way, with gains of 1.68% and 1.00% respectively. Credit Agricole trailed with a 0.83% rise on the day. From the auto sector, Renault and Peugeot both rallied by 2.42%.

On the VIX Index

The VIX Index reversed two consecutive gains on Wednesday, sliding 11.85% to end the day at 17.3.

Geopolitical risk eased throughout the day as news from HK to London alleviated market tensions.

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. July factory orders figures are due out of Germany in the early part of the day. While the forecast is negative for the majors, the latest shift in market risk appetite may have more legs in the day ahead.

Later in the day, economic data out of the U.S include August ADP nonfarm employment change figures, factory orders and August service sector PMIs.

We can expect the markets to be particularly sensitive to the factory orders, ISM non-manufacturing PMI and ADP numbers. The weekly jobless claims, nonfarm productivity, and unit labor cost figures will likely have a muted impact.

Outside of the stats, updates on Brexit will also influence. It’s a race against time, as the House of Lords receives the Bill to block a no-deal Brexit ahead of next week’s suspension of Parliament.

While geopolitical risk has abated, the U.S – China trade war continues and requires monitoring.

In the futures markets, at the time of writing, the DAX was up by 43.5 points, with the Dow Mini up by 53 points.