European Equities: FOMC Meeting Minutes to Set the Tone ahead of Key Stats from Germany
It was a mixed day for the European majors on Wednesday, with the EuroStoxx600 ending a 4-day losing streak.
The DAX30 and CAC40 fell by 0.37% and by 0.03% respectively, while the EuroStoxx600 ended the day up by 0.18%.
Economic data from Germany weighed on the DAX30 as business investment waned in November.
Rising prices and new COVID-19 cases tested business sentiment. On Tuesday, prelim November private sector PMI numbers had pointed to continued supply chain issues and cost pressures.
Late in the session, U.S economic data delivered mixed results, with the U.S economy growing slower than expected. Employment and personal spending figures were upbeat but not enough to support ahead of the FOMC meeting minutes due out after the European close.
For November, the Ifo Business Climate Index fell from 97.7 to 96.5 versus a forecasted 96.6.
According to the November survey,
- Companies were less satisfied with their current business situation and expectations became more pessimistic.
- The Business Expectations sub-index fell from 95.4 to 94.2 versus a forecasted 95.0.
- Also in decline was the Current Assessment sub-index, which slipped from 100.2 to 99.0.
- Supply bottlenecks continued to be an issue, with firms planning on raising prices.
- Sentiment in the service sector deteriorated noticeably.
- The last time the expectations indicator saw such a heavy decline was in Nov-2020.
- Service providers were also less satisfied with their current situation as well.
- As a result of the 4th wave of the COVID-19 pandemic, expectations plunged, especially in the tourism and hospitalities sectors.
By Sector, the Ifo Business Climate by sector moved were follows:
- Manufacturing: 17.5 to 16.5.
- Services: 16.6 to 11.5.
- Trade: 3.7 to 2.6.
- Construction: 12.8 to 12.0.
From the U.S
It was a particularly busy day on the economic calendar. Key stats included jobless claims, inflation, personal spending, core durable goods, and 3rd quarter GDP numbers.
In the week ending 19th November, initial jobless claims fell from 270k to 199k. Personal spending was also positive, with spending up 1.3% in October.
Core durable goods orders were market friendly, rising by 0.5% in October. In September, core durable goods orders had risen by 0.7%.
An upward revision to 3rd quarter GDP numbers failed to impress, however. The U.S economy expanded by 2.1% in the quarter, revised up from a previous estimate of 2.0%. Economists had forecast 2.2% growth.
Negative for riskier assets, however, was a pickup in inflation. In October, the Core PCE Price Index was up 4.1%, year-on-year. The index had been up by 3.6% in September.
Other stats included finalized consumer sentiment, durable goods orders, and trade data that had a muted impact on the markets
The Market Movers
For the DAX: It was a bearish day for the auto sector on Wednesday. Volkswagen and Continental slid by 1.96% and by 1.69% respectively, with Daimler ending the day down by 1.40%. BMW fell by a more modest 0.53% on the day.
It was a mixed day for the banks. Deutsche Bank rallied by 2.10%, while Commerzbank slipped by 0.31%.
From the CAC, it was a mixed day for the banks. Credit Agricole and Soc Gen rose by 0.32% and by 0.10% respectively, while BNP Paribas fell by 0.59%.
The French auto sector had a bearish session. Stellantis NV and Renault ended the day with losses of 1.32% and 1.55% respectively.
Air France-KLM and Airbus SE found support, however, rising by 0.92% and by 1.09% respectively.
On the VIX Index
It was back into the red for the VIX on Wednesday, ending a 5-day winning streak.
Reversing a 1.10% gain from Tuesday, the VIX fell by 4.13% to end the day at 18.58.
The Dow slipped by 0.03%, while the NASDAQ and the S&P500 saw gains of 0.44% and 0.23% respectively.
The Day Ahead
It’s a relatively busy day ahead on the Eurozone’s economic calendar. Germany GDP numbers for the 3rd quarter will be in focus alongside consumer sentiment figures for December.
Expect plenty of interest in both sets of numbers. With the number of new COVID-19 cases on the rise, however, the consumer sentiment figures may have a greater impact.
Later in the session there are no material stats, with the U.S markets closed for Thanksgiving.
Going into the open, however, market reaction to the overnight FOMC meeting minutes will also influence. The U.S markets bounced back in response to the minutes overnight.
Away from the economic calendar, downside risks remain. Any news from other EU member states of imposing new lockdown measures would be market negative.
In the futures markets, at the time of writing, the Dow Mini was up by 41 points.
For a look at all of today’s economic events, check out our economic calendar.