European Equities: German Factory Orders and Geopolitics in Focus

The Majors

It was a bullish end to a bearish week on Friday. The CAC40 led the way with a 0.86% gain, while the EuroStoxx600 and DAX30 both rose by 0.73%.

Friday’s gains were not enough to reverse losses from the week, however, with the DAX sliding by 2.97%. The EuroStoxx600 and CAC40 weren’t far behind, with losses of 2.95% and 2.70% respectively.

On the day, the gains came in spite of geopolitical risks continuing to linger, with Brexit, trade, and impeachment talk in focus.

Labor market figures from the U.S ultimately delivered the upside on the day, with the European majors reversing losses from earlier in the day.

The Stats

It was a particularly quiet day on the Eurozone economic calendar on Friday. There were no material stats to provide the European majors with direction.

The lack of stats left the majors in the hands of a busy U.S economic calendar, coupled with any chatter on Brexit and trade

From the U.S, it was a mixed set of labor market numbers. Nonfarm payrolls fell short of a forecasted 140k increase, with just 136k payrolls added in September. Wage growth also fell short of the market expectations, with wages rising by 2.9% year-on-year, which was down from 3.2% in August. Economists had forecasted wage growth to hold steady at 3.2%.

On the positive, however, was a fall in the U.S unemployment rate from 3.7% to 3.5% in September, which delivered the upside for the majors on the day.

Strong labor market conditions are expected to continue to support economic growth near-term. At 3.5%, the FED may also need to hold back on a 2nd rate cut…

The Market Movers

For the DAX: It was another bearish day for the auto sector, with Daimler (-0.38%), BMW (-0.37%), and Volkswagen (-0.12%) amongst the worst performers. Continental bucked the trend on Friday, gaining 0.31% after seeing significantly heavier losses earlier in the week.

Negative sentiment towards the German and global economy weighed on the day, with uncertainty ahead of U.S – China trade talks also weighing. With Trump also talking of tariffs on EU goods, there was unlikely to be any upside for autos in the week.

It was also a mixed day for Bank stocks, with Deutsche Bank gaining 0.35%, while Commerzbank slid by 2.28%.

From the CAC, it was a bullish day for the banks. Credit Agricole led the way, rising by 0.48% on Friday. BNP Paribas and Soc Gen rose by 0.40% and by 0.28% respectively. For the autos, Renault fell by 0.28%, whilst Peugeot ended the day flat.

On the VIX Index

The VIX Index fell by 11% to end the day at 17.0

In spite of weaker than anticipated nonfarm payroll and wage growth figures, a slide in the U.S unemployment rate weighed on the VIX.

Geopolitics took a temporary back seat on the day, ultimately resulting in the downside.

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. August German factory orders are due out ahead of the European open.

Following some dire numbers last week, we can expect the European majors to be sensitive to the figures.

While we can expect the figures to provide direction, geopolitics will continue to influence on the day. Any progress on Brexit negotiations would be a positive, though there is also trade war chatter to consider.

While the U.S – China negotiations are due to resume this week, any further threat of tariffs on EU goods would likely overshadow any positive Brexit news.

In the futures market, at the time of writing, the DAX30 was down by 2.5 points, with the Dow down by 119 points.