European Equities: Geopolitics Likely to Test the Majors Today

Geopolitical risk returns as the markets respond to the attacks on Saudi oil fields. With economic data on the lighter side, Brexit will also be in focus.
Bob Mason
List of stock market indices

Economic Calendar:

Monday, 16th September

  • Italian CPI (MoM) (Aug) Final

Tuesday, 17th September

  • German ZEW Current Conditions (Sep)
  • German ZEW Economic Sentiment (Sep)
  • Eurozone ZEW Economic Sentiment (Sep)

Wednesday, 18th September

  • Eurozone Core CPI (YoY) (Aug) Final
  • Eurozone CPI (YoY) (Aug) Final
  • Eurozone CPI (MoM) (Aug)

Friday, 20th September

  • German PPI (MoM) (Aug)

The Majors

It was another day for the bulls on Friday, with the DAX30 rising for a 0.47% to mark an 8th consecutive day in the green. The CAC40 and EuroStoxx600 saw more modest gains of 0.22% and 0.34% respectively.

Market reaction to a shift in U.S and China trade war rhetoric and further reaction to the ECB monetary policy stimulus drove the majors on the day.

On Thursday, the U.S President spoke of a willingness to reach an interim trade agreement, raising hopes of a near-term end to the trade war. The comments followed China’s removal of certain U.S goods from planned tariffs and the U.S delay to tariffs on Chinese goods until 15th October.

From the UK, positive sentiment towards Brexit also provided support. While maintaining his stance on pulling Britain out of the EU on 31st October, the British PM was busy negotiating Brexit terms in a bid to reach an agreement in time.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Friday. Key stats included Eurozone trade and wage growth numbers. Finalized inflation figures out of Spain had a muted impact on the majors.

According to Eurostat, the Eurozone’s trade surplus widened from €20.6bn to €24.8bn in July, coming in ahead of a forecasted €17.4bn.

  • Exports of goods to the rest of the world stood at €206.5bn in July, rising by 6.2%, year-on-year.
  • Imports of goods from the rest of the world stood at €181.7bn, up by 2.3%, year-on-year.
  • Intra-euro area trade increased by 1% to €165.6bn, year-on-year.

In the 2nd quarter, wages grew by 2.7%, which was at the same pace as in the 1st quarter. According to Eurostat,

  • Slovakia reported the largest increase, with wages rising by 10.7%. Estonia came in a distant second, with wages rising by 8.4%.
  • Portugal (0.9%) and Malta (1.1%) reported the lowest increases in wages.

The Market Movers

From the DAX, the auto sector found strong support on the day. Daimler and Continental led the way, rising by 1.53% and 1.45% respectively. Volkswagen and BMW and wasn’t far behind with gains of 0.84% and 1.12% respectively.

It was also a bullish day for the banks. Deutsche Bank rose by 1.54%, while Commerzbank rallied by 5.9%.

From the CAC, it was also a solid day for the banks. Credit Agricole and BNP Paribas led the way, with gains of 2.96% and 2.53% respectively. Soc Gen saw a more modest 1.68% rise on the day. The auto sector continued to make ground, with Renault and Peugeot gaining 2.95% and 1.60% respectively.

On the VIX Index

The VIX Index saw red for an 8th day in 9 on Friday, falling by 3.52% to end the day at 13.7.  ECB monetary policy, Brexit news and easing tensions between the U.S and China weighed on the day.

The Day Ahead

It’s a quiet start to the week on the Eurozone economic calendar. Economic data is limited to finalized inflation figures out of Italy.

We expect the numbers to have a muted impact on the European majors. From elsewhere, industrial production figures out of China could add fuel to the fire, should the stats disappoint, as risk aversion gripped the global financial markets

Attacks on Saudi oil fields over the weekend drove demand for the safe havens, with unrest in HK adding to the market angst in the early part of the day.

Later this afternoon, the U.S NY Empire State Manufacturing Index figures for September may also be brushed aside should the there be the talk of retaliation in the Middle East.

In the futures markets, at the time of writing, the DAX was down by 118.5 points, with the Dow Mini was down by 167 points.

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