European Equities: Geopolitics Likely to Overshadow Stats in the Day AheadThe European majors will be tested through the day. French consumer spending figures will provide direction. It will ultimately come down to geopolitics.
The European majors found much-needed support on Thursday, following 3 consecutive days in the red for the DAX30 and CAC40. Leading the way was the CAC40, which rose by 0.66%. DAX30 and EuroStoxx600 weren’t far behind, with gains of 0.44% and 0.61% respectively.
More positive comments from the U.S President on a willingness to form a trade agreement with China provided support to the European majors.
News of China increasing the import of pork was also positive going into the European open.
The more positive sentiment towards trade, coupled with an all-important pickup in German consumer sentiment delivered on the day.
Brexit and Impeachment talk from the U.S limited the upside for the European majors on the day, however.
It was a quiet day on the Eurozone economic calendar on Thursday. Economic data was limited to Germany’s GfK Consumer Climate figures for September.
According to the latest GfK Consumer Climate Study for September,
- After 2 consecutive monthly declines, the economic outlook indicator rose by 3 points to -9.0 points. While up for the month, consumers continued to see a clear slowdown in the U.S economy.
- Year-on-year, the economic outlook indicator was down by 33.6 points.
- Income expectations also fell for a 2nd consecutive month. The income expectations indicator fell by 3.3 points to 46.8 points.
- Year-on-year, the indicator was down by 8 points.
- The Propensity to buy indicator rose by 6.3 points to 55.1, supported by the ECB’s monetary policy decision. The ECB monetary policy decision weighed on the propensity to save, however, which fell to its lowest level since Apr-16.
The Economic Bulletin
Following the consumer climate figures, the ECB released its September Economic Bulletin. Key points included:
- Incoming information since the last meeting indicates a more protracted weakness of the euro area economy, the persistence of downside risks and muted inflationary pressures.
- Robust employment growth and increasing wages continue to underpin the resilience of the euro area economy.
- Economic data and survey information continue to point to moderate but positive growth in the 3rd
- While the manufacturing sector feels the impact of the weakness of international trade, service, and construction services show ongoing resilience. Support comes from favorable financial conditions, further employment gains and rising wages, an expansionary fiscal stance and moderate growth in global activity.
- The economy is projected to grow by 1.1% in 2019, 1.2% in 2020 and by 1.4% in 2021. Compared with June 2019, growth was revised down for 2019 and 2020.
- Headline inflation is likely to decline before rising again towards the end of the year.
- Underlying inflation remained muted and indicators of inflation expectations stand at low levels.
- Over the medium-term, underlying inflation is expected to increase, supported by ECB monetary policy measures, economic expansion, and wage growth.
From the U.S, economic data was on the heavier side but had a muted impact on the majors. The key stat of the day was the 3rd estimate GDP for the 2nd quarter, which came in at 2%. This was in line with the 2nd estimate and forecasts.
The Market Movers
From the DAX, autos were mixed on Thursday. Volkswagen and Continental rose by 0.12% and 0.87% respectively, while Daimler and BMW fell by 1.21% and 0.46% respectively.
Banks struggled on the day, with Deutsche Bank sliding by 1.90%, while Commerzbank slipped by 0.37%.
Leading the way on the DAX was Adidas, which rallied by 3.2%. The positive news on trade also supported Infineon Technologies, which rose by 1.22%.
From the CAC, it was a positive day for the banks. BNP Paribas led the way, rising by 0.77%. Credit Agricole and Soc Gen gained 0.50% and 0.06% respectively. For the autos, Renault slid by 1.51%, whilst Peugeot rose by 0.62%.
On the VIX Index
The VIX Index ended the day relatively flat, with a 0.69% gain to 16.1.
It was bittersweet for the markets on Thursday. Mixed chatter on trade initially provided support, following Trump’s comments on Wednesday. On the negative front, however, was news that there was unlikely to be an extension to the waiver given to U.S firms to continue to supply Huawei.
Mixed sentiment towards trade and the ongoing impeachment story ultimately led the U.S majors into the red, supporting the VIX on the day.
The Day Ahead
It’s another quiet day ahead on the Eurozone economic calendar. French consumer spending figures are due out ahead of the European open.
With the ECB reliant on consumer spending for support, we can expect the majors to be sensitive to the numbers.
Later in the day, economic data out of the U.S will also influence. Key stats include inflation, durable goods orders, and personal spending figures. Barring particularly impressive figures, the Michigan Consumer Sentiment and Expectation figures will likely have a muted impact late in the session.
On the geopolitical risk front, there’s plenty for the markets to consider. Trade, impeachment and Brexit news will be front line on the day.
In the futures markets, at the time of writing, the DAX was up by 21.5 points, while the Dow Mini was down by 48 points.