European Equities: Futures Point Northwards as the Markets Prepare for the FED

A lack of catalysts left the markets floundering for direction for a 2^nd day following last week’s rally. The markets had little else to consider but economic data and the economic outlook.

News of the U.S officially entering a recession and the Eurozone’s GDP numbers contributed to the gloomy mood on the day.

While anticipated, the GDP numbers followed on from the World Bank’s forecast of a 5.2% contraction in the global economy in 2020.

Ahead of the European open, business confidence figures from Australia and New Zealand also reminded the markets of a likely slow wind up in investment. A combination of weak business and consumer confidence would fail to fuel a speedier economic recovery.

The Stats

It was a quiet day on the Eurozone economic calendar on Tuesday. German trade data for April was in focus.

The trade surplus narrowed from €12.8bn to €3.2bn in April. Economists had forecast a narrowing to €10.2bn.

According to Destatis,

• Exports fell by 24% on the previous month and by 31.1% on the same month a year earlier to €75.7bn.
• Year-on-year, exports saw the largest decline on record, while imports fell by the greatest extent since July 2009.
• Imports declined by 16.5% in the previous month and by 21.6% in the same month a year earlier to €72.2bn.
• In April 2020, Germany exported goods to the value of €38.2bn (-34.8%) to EU member states, while importing goods to the value of €35.2bn (-30.1%).
• Exports to countries outside the EU totaled €37.5bn (-27.0%), while imports totaled €37.0bn (-11.4%).
• Exports to China fell by 12.6% to €7.2bn. There were larger falls in exports, however, to France (-48.3%), Italy (-40.1%), and the U.S (-35.8%).
• Interestingly, most imports came to Germany from China in April 2020. Imports totaled €9.4bn, up by 10% from April 2019.
• Imports from the U.S rose by a more modest 2.4% to €5.9bn.

From the Eurozone, the economy contracted less than initially thought in the 1^st quarter.

Quarter-on-quarter, the economy contracted by 3.6%, revised up from 3.8%. In the 4^th quarter, the economy had grown by just 0.1%. Year-on-year, the economy contracted by 3.1%, which was revised up from a prelim 3.2%. In the 4^th quarter, the economy had grown by 1.0%.

According to Eurostat,

• The contractions were the sharpest seen since the time series started in 1995.
• By member state, Ireland came out on top, with the economy expanding by 1.2%. France and Italy recorded the highest declines (both -5.3%), with Spain and Slovakia (both -5.2%) also seeing marked contractions.
• Household final consumption slumped by 4.7%, with gross fixed capital formation falling by 4.3%.
• At the industry level, trade, transport, accommodation, & food services activities (-6.8%) and arts, entertainment, and other services (-6.8%) saw the largest declines.
• The agriculture sector saw the mildest decline of just 0.8%.

From the U.S

Economic data was limited to April’s JOLTs job openings that also had a muted impact on the majors on the day.

According to the April report, job openings fell from 6.011m to 5.046m. Lockdown measures as a result of the COVID-19 pandemic had weighed on labor market conditions in April.

The Market Movers

For the DAX: It was a particularly bearish day for the auto sector on Tuesday. Continental and Daimler slid by 4.04% and 4.24% to lead the way down. BMW and Volkswagen weren’t far behind, however, with losses of 3.76% and 3.92% respectively.

It was also a particularly bearish day for the banks. Deutsche Bank and Commerzbank tumbled by 4.29% and by 5.56% respectively.

Things were not much better for Deutsche Lufthansa that fell by 4.44%, following Monday’s 14.28% breakout.

From the CAC, it was also a day in the deep red for the banks. Credit Agricole and Soc Gen slid by 6.34% and 7.40% respectively. BNP Paribas saw a more modest loss of 3.27%.

Across the auto sector, there was also little support, with Peugeot and Renault falling by 5.21% and by 3.24% respectively.

Air France-KLM slumped by 8.34% to reverse Monday’s 8.51% gain. Airbus SE wasn’t far behind, with a 7.62% slide on the day.

On the VIX Index

It was a 2^nd consecutive day in the green for the VIX on Tuesday, which rose by 6.82%. Following on from a 5.26% gain on Monday, the VIX ended the day at 27.57.

A lack of stats left the markets struggling ahead of Wednesday’s conclusion to the FOMC meeting. The FOMC will deliver economic projections for the first time this year…

Following on from the World Bank’s economic forecasts, the markets will get the first glimpse through the FED’s lens…

The S&P500 and Dow fell by 0.78% and by 1.09% respectively, while the NASDAQ rose by 0.29% to buck the trend.

For the S&P500, the return to positive territory for the current year was brief, with Tuesday’s loss sending it back into the red.

The Day Ahead

It’s a particularly quiet day ahead on the Eurozone economic calendar. There are no material stats due out of the Eurozone to provide the majors with direction.

From the U.S, there are also no material stats due out later today. That leaves market sentiment towards the FOMC meet and the economic projections to dictate sentiment on the day. Hopes of continued support from the FED likely contributed to the uptick ahead of the European open.

COVID-19 numbers have also been creeping up as lockdown measures ease, which will be another factor for the markets to consider. While the U.S and EU member states have seen new cases drop since last Friday’s spike, we have yet to see either side of the Atlantic report zero new cases.

As EU member states begin opening borders, there is uncertainty over traffic amidst the pandemic. A sharp pickup in new cases would certainly impact plans to fully reopen…

The Latest Coronavirus Figures

On Tuesday, the number of new coronavirus cases rose by 128,377 to 7,316,820. On Monday, the number of new cases had risen by 102,703. The daily increase was higher than Monday’s rise and 112,694 new cases from the previous Tuesday.

Germany, Italy, and Spain reported 843 new cases on Tuesday, which was up from 783 new cases on Monday. On the previous Tuesday, 938 new cases had been reported.

From the U.S, the total number of cases rose by 19,894 to 2,045,549 on Tuesday. On Monday, the total number of cases had risen by 18,206. On Tuesday, 2^nd June, a total of 21,208 new cases had been reported.

In the futures markets, at the time of writing, the DAX was up by 63.5 points, with the Dow up by 176 points.

For a look at all of today’s economic events, check out our economic calendar.