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Bob Mason
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Economic Calendar:

Monday, 6th January 2020

German Retail Sales (MoM) (Nov)

Spanish Services PMI (Dec)

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Italian Services PMI (Dec)

French Services PMI (Dec) Final

German Services PMI (Dec) Final

Eurozone Markit Composite PMI (Dec) Final

Eurozone Services PMI (Dec) Final

Tuesday, 7th January 2020

Eurozone CPI (YoY) (Dec) Prelim

Eurozone CPI Core (YoY) (Dec) Prelim

Eurozone Retail Sales (MoM) (Nov)

Wednesday, 8th January 2020

German Factory Orders (MoM) (Nov)

Thursday, 9th January 2020

German Industrial Production (MoM) (Nov)

German Trade Balance (Nov)

Eurozone Unemployment Rate (Nov)

ECB Monetary Policy Meeting Minutes

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The Majors

It was a bearish end to the week for the European majors. The DAX30 and EuroStoxx 600 slid by 1.25% and by 1.39% respectively, while the CAC40 rose by 0.04%.

Market reaction to the U.S drone attack that killed Iran’s most senior military commander led to risk aversion and a jump in crude oil prices.

The strike led to Iran’s promising retaliation to the attack that raises the prospects of a regional war in the Middle East.

Positive sentiment towards the U.S – China trade agreement was not enough to prevent heavy losses on Friday.

The Stats

It was a busy day on the Eurozone economic calendar on Friday. Key stats included German and Spanish employment numbers and prelim inflation figures out of France and Germany.

From Germany, unemployment rose by 8k in December, partially reversing a 16k fall in November. In spite of the rise, the unemployment rate held steady at 5.0%.

The negative numbers added further pressure on the DAX.

A pickup in inflationary pressures had a muted impact on the majors on the day, with the annual rate of inflation continuing to sit well below the ECB target.

From the U.S, a quicker pace of contraction in the manufacturing sector didn’t help market sentiment on the day.

Should the U.S get embroiled in an extended conflict in the Middle East, the U.S – China trade agreement may not be enough to support global trade.

Rising oil prices will drive inflation and weigh on the manufacturing sector that is already facing margin pressures.

The Market Movers

For the DAX: It was a particularly bearish day for the auto sector. Continental led the way down, sliding by 3.17%. Volkswagen and Continental also saw heavy losses, with the pair falling by 2.66% and by 2.58% respectively. BMW saw a more modest loss of 1.83% on the day.

It was also a bearish day for the banks. Commerzbank fell by 1.78%, with Deutsche Bank sliding by 2.28%.

From the CAC, it was also a bearish day for the banks. BNP Paribas and Soc Gen fell by 1.19% and by 1.01% respectively. Credit Agricole saw a more modest 0.61% loss on the day.

The French auto sector struggled, with Peugeot and Renault falling by 1.93% and by 1.62% respectively.

While autos were amongst the biggest losers at the end of the week, airline stocks saw the heaviest losses. On the DAX30, Deutsche Lufthansa slid by 6.45%, with Air France – KLM sliding by 7.92%.

By contrast, France’s Total rallied by 1.13% on the day

On the VIX Index

The VIX surged by 12.43% on Friday. Reversing a 9.51% slide from Thursday, the VIX ended the day at 14.0.

Market reaction to the U.S airstrike that killed Iran’s most senior military commander led to a slide in the equity markets, providing support on the day.

The chances of a full-blown conflict just spiked, with Iran threatening a response that leaves the markets questioning when and where…

The Day Ahead

It’s a busy day on the Eurozone economic calendar. Key stats German retail sales figures due out in the early part of the day.

Forecasts are positive for the DAX30 and the EUR. Through the late morning, Spanish, Italian service sector PMIs are also due out along with finalized numbers out of France, Germany, and the Eurozone.

Barring material deviation from prelim, we would expect Italy’s services PMI and the Eurozone’s composite to have the greatest influence.

Ahead of the open, China’s service sector PMI will also influence.

From the U.S, we would expect finalized service sector PMI and the composite PMI to have a muted impact.

How the markets respond to the numbers on the day will largely depend on chatter from Iran’s supreme leader, however.

The continued threat of retaliation will leave the majors on the defensive at the start of the week.

In the futures markets, at the time of writing, the DAX30 was down by 99%, with the Dow down by 112 points.

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