European Equities: Geopolitics and Monetary Policy to Influence

The Majors

The European majors saw red on Tuesday. While in the red, the trio saw relatively modest losses on the day. The DAX30 and CAC40 fell by 0.55% and 0.50% respectively, with the EuroStoxx600 falling by 0.68%.

Economic data had a muted impact on the majors, leaving geopolitics to provide direction on the day.

From the EU, Italian Prime Minister Conte’s resignation announcement weighed on the majors. The resignation came in response to Salvini’s call for a vote of no confidence last week.

On the trade war front, news of the U.S administration adding an additional 46 Huawei-linked entities to the existing blacklist was also negative. The move came in spite of Huawei receiving the 90-day extension.

The Stats

On the data front, economic data out of the Eurozone was limited to German wholesale inflation figures for July.

Producer prices of industrial products rose by 0.1% in July, partially reversing a 0.4% slide in June. Economist had forecast the index to remain unchanged.

According to Destatis,

• Compared with June 2018, producer prices of industrial products increased by 1.1%.
  • Rising electricity prices had the greatest contribution, rising by 8.4% year-on-year. (Month-on-month, electricity prices rose by 2.2%.
  • Year-on-year, energy prices as a whole increased by 2.1% and by 0.7%, month-on-month.
  • Excluding energy, the index was up by 0.7% y/y, while down by 0.1% m/m.
  • Prices of non-durable consumer goods increased by 1.7% y/y, while down by 0.2% m/m.
  • Food prices rose by 2.2%, with prices of capital goods and durable consumer goods rising by 1.5% and 1.3% respectively, year-on-year.

The figures had a muted impact on the European majors, however.

There were no material stats out of the U.S on the day to influence the European majors.

The Market Movers

From the DAX, Adidas bucked the trend on the day, rising by 0.19% as the rest of the index components saw red. From the auto sector, Daimler was the worst performer, sliding by 2.06%. Continental and BMW weren’t far behind with losses of 1.26% and 1.14% respectively. Volkswagen fell by 1.07%.

In the banking sector, Deutsche Bank declined by 1.01%, while Commerzbank slid by 1.97%.

From the CAC, things were not much better, with just 3 components in the green. Airbus led the way, rising by 1.14%.

For the banking sector, Credit Agricole and Soc. Gen were the worst performers sliding by 1.46% and by 1.23% respectively. BNP Paribas saw a more modest 0.65% decline. Autos also struggled with Renault and Peugeot falling by 0.9% and by 1.39% respectively on the day.

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 on the day.

A lack of stats will leave the markets to look ahead to the FOMC meeting minutes that are due out after the European close.

There’s a lot resting on a dovish FED and the expectation of a rate cut as early as next month, which could test market resolve through the session.

Out of the U.S, economic data is limited to July existing home sales, which will have a muted impact on the European markets late on.

On the geopolitical front, the trade war continues to send mixed messages to the markets, with any further chatter likely to influence on the day. Political chatter from Italy and updates from Boris Johnson’s scheduled meeting with German Chancellor Merkel will also have an impact.

In the futures markets, at the time of writing, the DAX was down by 16.5 points, while the Dow Mini was up by 27 points.