Could German employment numbers spoil the New Year rally?
German Unemployment Change and Rate (Dec)
German CPI (MoM) (Dec) Prelim
French CPI (MoM) (Dec) Prelim
It was a bullish day for the European majors. The CAC40 and DAX30 rose by 1.06% and by 1.03% respectively, with the EuroStoxx600 gaining 0.93%.
Reversing losses from earlier in the week, support came from optimism over the U.S – China phase 1 trade agreement.
Over the holidays, U.S President Trump had announced that the phase 1 agreement would be signed on 15th January.
The PBoC gave the markets an extra boost, announcing that it would cut the Reserve Requirement Ratio by 50 basis points.
It was a busy day on the Eurozone economic calendar on Thursday. December manufacturing PMI numbers from Italy and Spain and finalized manufacturing PMI numbers from France, Germany, and the Eurozone were in focus.
According to the December Markit Surveys,
Spain’s Manufacturing PMI eased from 47.5 to 47.4 in December, while coming in ahead of a forecast of 47.0.
Italy’s Manufacturing PMI decreased from 47.6 to 46.2 in December, falling beyond a forecast of 47.2.
France’s finalized Manufacturing PMI came in at 50.4, upwardly revised from a prelim 50.3, while down from a November 51.7.
Germany’s finalized Manufacturing PMI came in at 43.5, which was better than a prelim 43.4. In November the PMI had stood at 44.1.
According to the Eurozone Markit PMI Survey,
The finalized Markit Survey Manufacturing PMI rose from a prelim 52.5 to 52.6 in December. In November, the PMI had stood at 52.6.
Earlier in the day, China’s Caixin Manufacturing PMI fell from 51.8 to 51.5 in December. Economists had forecast for the PMI to hold steady at 51.8.
For the DAX: It was a bullish day for the auto sector. Volkswagen led the way, rallying by 2.63%, with BMW (+1.72%), Continental (1.87%), Daimler (+1.54%) also saw solid gains on the day.
It was a particularly bullish day for the banks. Commerzbank rallied by 5.84%, with Deutsche Bank surging by 7.32%.
From the CAC, it was also a bullish day for the banks. BNP Paribas and Credit Agricole rose by 1.53% and by 2.05% respectively, with Soc Gen rallying by 2.14% to lead the way.
It was a mixed day for the French auto sector, however, with Peugeot rallying by 2.91%, while Renault fell by 0.06%.
Airbus also found strong support after toppling Boeing from the number 1 spot. Airbus became the largest manufacturer of aircraft for the first time since 2011.
The VIX slid by 9.51% on Thursday. Following on from a 7.02% fall on Tuesday, the VIX ended the day at 12.5.
Optimism over the U.S – China trade deal supported risk appetite at the start of the year, pinning the VIX back on the day.
It’s a relatively busy day on the Eurozone economic calendar. Key stats include French, German and Italian prelim inflation figures and German unemployment numbers for December.
Barring a material jump in inflationary pressures, we would expect Germany’s unemployment change figures to have the greatest impact on the majors.
If the latest manufacturing PMI numbers are anything to go by, labor market conditions continue to be under pressure.
Later in the day, the market’s preferred ISM Manufacturing PMI numbers will provide direction late in the session.
While the stats will influence, expect market risk sentiment towards trade and Brexit to also be a factor on the day.
In the futures markets, at the time of writing, the DAX was up by 50 points, with the Dow up by 35 points.
With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.