European Equities: Geopolitics and Earnings in Focus

The Majors

It was a bullish day for the European majors on Monday, with the DAX30 rallying by 2.71% to lead the way. The CAC40 and EuroStoxx600 weren’t far behind, with gains of 1.93% and 2.05% respectively.

Positive economic data from the Eurozone and the U.S delivered support on the day.

The markets were able to brush aside continued tension between the U.S and China at the start of the week. On the weekend, the administration had announced that Trump would impose new measures on Chinese software companies considered to be a threat to U.S national security.

From Capitol Hill, progress towards the COVID-19 stimulus package was also positive, though there was still no deal.

The Stats

It was a busy day on the Eurozone economic calendar. Key stats included July’s manufacturing PMIs for Italy and Spain.

Finalized manufacturing PMIs from France, Germany, and the Eurozone were also in focus.

In July, Spain’s Manufacturing PMI rose from 49.0 to 53.5. Economists had forecast a rise to 52.0.

Italy’s Manufacturing PMI rose from 47.5 to 51.9, which was better than a forecasted 51.2.

The finalized French PMI came in at 52.4, which was up from a prelim 52.0, while Germany’s came in at 51.0. This was also up from a prelim 50.0. In June, the PMIs had stood at 52.3 and 45.2 respectively.

For the Eurozone, the July PMI came in at 51.8, which was up from a prelim 51.1 and June 47.4.

According to the Eurozone’s July Markit Survey,

• The Eurozone’s manufacturing economy recorded its first growth in a year-and-a-half during July.
• Output and demand continued to recover in line with the further easing of restrictions on activity.
• Consumer goods was the best performing, registering the strongest expansion for over a year-and-a-half.
• New orders expanded for the first time in nearly 2-years and were the strongest since early 2018. New export orders rose for the first time since September 2018.
• Workforce numbers were in decline for a 15^th consecutive month, with the degree of decline significant by historical levels.
• At the country level, only 2-nations – Greece and the Netherlands – registered readings below 50.0.
• Spain was the strongest-performer, followed by Austria, France, and Italy.
• Germany ranked 5^th in spite of a 19-month high.

From the U.S

Economic data included July’s ISM Manufacturing PMI and the finalized Markit Manufacturing PMI.

The ISM Manufacturing PMI rose from 52.6 to 54.3. Economists had forecast an increase to 53.6.

The finalized Markit PMI came in at 50.9, which was down from a June 49.8. The prelim had stood at 51.3.

The Market Movers

For the DAX: It was a particularly bullish day for the auto sector on Monday. Volkswagen reversed Friday’s 5% loss with a 5.14% gain to lead the way. Continental and Daimler weren’t far behind, rallying by 4.18% and 4.16% respectively. BMW trailed with a more modest 2.67% gain.

Positive manufacturing numbers from China, the Eurozone, and the U.S delivered the boost for the auto sector.

It was also a bullish day for the banks. Deutsche Bank rose by 3.17%, with Commerzbank ending the day up by 2.37%.

From the CAC, it was a mixed day for the banks. Soc Gen fell by 0.65%, while BNP Paribas and Credit Agricole rallied by 3.94% and by 3.03% respectively..

Missed earnings weighed on Soc Gen on the day, as the bank increased loan loss provisions due to the COVID-19 pandemic.

It was a positive day for the French auto sector. Peugeot and Renault saw gains of 2.16% and 4.69% respectively.

Air France-KLM bucked the trend, however, falling by 3.41%, while Airbus SE rose by 2.77%.

On the VIX Index

It was a 2^nd consecutive day in the red for the VIX on Monday. Following on from a 1.21% loss on Friday, the VIX fell by 0.74% to end the day at 24.28.

Positive economic data from the U.S coupled with progress towards a COVID-19 stimulus package and earnings delivered support.

The S&P500 and Dow rose by 0.72% and by 0.89% respectively, with the NASDAQ rallying by 1.47%.

The Day Ahead

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

A lack of stats will leave the majors in the hands of COVID-19 news and geopolitics.

From the U.S

June factory orders, due out later in the day, will influence. The markets will be looking for some more positive numbers after last week’s 2^nd quarter GDP figures.

Away from the economic calendar, corporate earnings, and updates from Capitol Hill on the passage of the COVID-19 stimulus package will also continue to influence.

The markets will need to look out for any moves by the U.S administration against Chinese tech companies, however. Tensions between the U.S and China remain heightened and could boil over at any time.

The Futures

In the futures markets, at the time of writing, the Dow was down by 7 points.

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