European Equities: Futures Say Green at the Open. Brexit Could be a Curve Ball

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Published: Mar 27, 2019, 06:04 UTC

It's looking like another gain at the open, but the day ahead will have its pitfalls... The focus will be on UK parliament and on any Oval Office chatter.

Economic Calendar:

Wednesday, 27^th March 2019

ECB President Draghi Speaks

Thursday, 28^th March 2019

Spanish CPI y/y (Mar) Prelim
Spanish HICP y/y (Mar) Prelim
German CPI m/m (Mar) Prelim

Friday, 29^th March 2019

German Retail Sales m/m (Feb)
French Consumer Spending m/m (Feb)
French CPI m/m (Mar) Prelim
French HICP m/m (Mar) Prelim
Spanish GDP q/q (Q4)
German Unemployment Change (Mar)
German Unemployment Rate (Mar)
Italian CPI m/m (Mar) Prelim

The Majors

There was finally some green on board for the European majors. While the EuroStox600 and DAX gained 0.77% and 0.64% respectively, the CAC40 led the way, rising by 0.89%.

The moves through the day reversed Monday’s losses, whilst the doom and gloom of the year remained for the DAX in particular, which was still down by 11.6% year-to-date.

Economic data out of the Eurozone was mixed on Tuesday. An upward revision to France’s 4^th quarter, year-on-GDP figure to 1% provided support for the CAC. In contrast, a particularly weak consumer confidence number out of Germany for April pinned back the upside for the DAX.

While the data provided direction through the day, the key driver was a recovery in government bond yields through the early part of the day.

Following Monday’s broad-based sell-off, the Asian majors managed to bounce back, with the exception of the China markets, on Tuesday.

The pickup in government bond yields reflected less fear of a near-term recession in the U.S, in spite of a lack of positive data.

Out of the U.S, a slide in consumer confidence failed to weigh on risk sentiment. Hopes of progress on trade talks between the U.S and China supported the gains on the day.

With U.S President Trump now free and clear from the Mueller investigation, expectations are that both sides will now be incentivized to close out an agreement. China Premier Xi will be mindful that he could be facing Trump through to 2024. President Trump will be looking to avoid a recession to almost assure his re-election next year.

The Day Ahead

There are no material stats scheduled for release out of the Eurozone to provide direction to the majors through the day.

While there are no stats, ECB President Draghi and other members of the ECB are scheduled to speak through the day.

Following a particularly dovish RBNZ in the early hours of this morning, any more dovish chatter would be a negative for the EUR. While the equity markets tend to respond favorably to a weaker EUR, negative sentiment towards the economic outlook would offset any upside.

The positive for the day ahead, however, will be the expectation of progress on trade talks between the U.S and China.

One curveball for the markets later today could come from UK parliament. Following Theresa May’s loss of control of Brexit on Monday, MPs will be looking to find a way forward. Any hint of Britain looking to leave without a deal and any upside would be reversed in the majors.

EU trade terms with the UK are particularly favorable. When considering the fact that the UK is a net importer of goods, the threat of trade terms reverting to WTO terms would be damaging.

At the time of writing, the DAX30 and CAC40 futures were in the green, tracking the U.S futures into positive territory. The Asian majors were mixed earlier on in the day, with the Nikkei bucking the trend to end the day in the red.

About the Author

Bob Masonauthor

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.