European Equities: German Business Sentiment and Eurozone Inflation in Focus

Member States

In December, France’s manufacturing PMI fell from 55.9 to 54.9 versus a forecasted 55.5 with the services PMI declining from 57.4 to 57.1. Economists had forecast a PMI of 56.0.

Germany’s manufacturing PMI increased from 57.4 to 57.9 versus a forecasted fall to 56.8. The services PMI slid from 52.7 to 48.4 versus a forecasted 51.0, however.

The Eurozone

In December, the Eurozone’s manufacturing PMI declined from 58.4 to 58.0 versus a forecasted 57.8. The services PMI fell from 55.9 to 53.3. Economists had forecast a decline to 54.1.

As a result, the Eurozone composite PMI decreased from 55.4 to 53.4 versus a forecasted 54.0.

According to the prelim December survey,

• The Composite Output Index fell to a 9-month low 53.4.
• Rising COVID-19 infection rates hit the services sector in December, offsetting improving manufacturing sector growth.
• Manufacturing output growth picked up and outpaced services for the first time in 5-months.
• Easing supply delays was positive, while firms’ costs and average selling prices continued to rise sharply. The rates of increase softened, however, from November’s record highs.
• Business optimism remained resilient, despite rising virus cases, supporting jobs growth.

By member state,

• Growth in Germany stalled due to the first drop in new orders for goods and services since Jun-2020.
• By contrast, France continued to growth at a solid pace, while down from November.
• Across the rest of the region, the rate of expansion was the slowest since April.

Other stats

Other stats included wage growth and trade data for the Eurozone that had a muted impact on the majors.

ECB Monetary Policy

Largely in line with expectations, the ECB announced its plans to reduce net asset purchases, while leaving interest rates unchanged.

Summary of the ECB policy decisions

• In the 1^st quarter of 2022, the Governing Council expects to conduct net asset purchases under the PEPP at a slower pace than in the previous quarter.
• It will discontinue net asset purchases under the PEPP at the end of March 2022.
• The ECB will extend the reinvestment horizon for the PEPP. It now intends to reinvest the principal payments from maturing securities purchases under the PEPP until at least the end of 2024.
• Asset purchases would be reduced to €20bn from October 2022 onwards. Purchases would continue as long as necessary to reinforce the accommodative impact of its policy rates.
• The interest rate on the main refinancing operations and the interest rates on the marginal lending and the deposit facility would remain unchanged.
• As announced, the ECB expects the special conditions applicable under TLTRO III to end in June 2022.

From the U.S

Jobless claims, Philly FED Manufacturing, industrial production, and prelim private sector PMI figures were in focus.

In the week ending 10^th December, initial jobless claims rose from 188k to 206K.

Service sector PMI numbers were also market negative, with the prelim services PMI falling from 58.0 to 57.5. The manufacturing PMI decreased from 58.3 to 57.8.

The Philly FED Manufacturing Index followed a similar trend, falling from 39 to 15.4 in December.

Industrial production saw a further increase, however, albeit less than economists had anticipated. In November, production rose by 0.5% after a 1.7% increase in October.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Thursday. BMW and Volkswagen led the way, with gains of 1.55% and 1.80% respectively. Daimler and Continental ended the day up by 0.70% and by 0.43% respectively.

It was also a bullish day for the banks. Deutsche Bank and Commerzbank rallied by 2.31% and by 1.80% respectively.

From the CAC, it was a bullish day for the banks. BNP Paribas and Soc Gen rose by 1.91% and by 2.00% respectively, with Credit Agricole gaining 0.51%.

The French auto sector also found support. Stellantis NV and Renault ended the day up by 2.67% and by 2.22% respectively.

Air France-KLM slipped by 0.45%, however, while Airbus SE rallied by 2.41%.

On the VIX Index

It was back into the green for the  VIX on Thursday.

Partially reversing an 11.88% fall from Wednesday, the VIX rose by 6.64% to end the day at 20.57.

The NASDAQ slid by 2.47%, with the Dow and the S&P500 falling by 0.08% and by 0.87% respectively.

The Day Ahead

It’s a relatively busy day ahead on the Eurozone’s economic calendar. German wholesale inflation and business sentiment figures will be in focus ahead of finalized Eurozone inflation figures.

Expect the business sentiment and Eurozone inflation figures to have the greatest influence on the majors.

From the U.S, there are no material stats to consider, leaving the majors in the hands of central bank chatter and COVID-19 news updates.

Following the overnight tech sell-off in the U.S, it could be a testy day ahead for the majors.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 21 points.

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