European Equities: It’s All Eyes on Draghi, as Trade War News Supports Market RiskIt’s a big day for the majors. While economic data is on the heavier side, it’s all down to the ECB monetary policy decision. It’s sink or swim time…
Thursday, 12th September
- German CPI m/m (Aug) Final
- French CPI m/m (Aug) Final
- French HICP m/m (Aug) Final
- Eurozone Industrial Production m/m (Jul)
- Deposit Facility Rate (Sep)
- ECB Interest Rate Decision (Sep)
Friday, 13th September
- Spanish CPI y/y (Aug) Final
- Spanish HICP y/y (Aug) Final
- Wages in eurozone y/y (Q2)
- Eurozone Trade Balance (Jul)
It was risk-on through the day on Wednesday. The EuroStoxx600 led the way, rising by 0.85%. The DAX30 wasn’t far behind, gaining 0.74% to mark a 5th consecutive day in the green, while the CAC40 trailed with a 0.44% gain.
In spite of negative sentiment towards the Eurozone economy and global trade terms, it’s been a bullish start to the month. The DAX was up by 3.52% to Wednesday’s close, with the EuroStoxx600 and CAC40 up by 2.7% and 2.51% respectively.
The majors continued to find support from hopes of the ECB delivering later today and the FED cutting rates next week.
On the geopolitical front, U.S – China trade tensions eased ahead of next month’s talks. News hit the wires on Wednesday of China listing a range of U.S products that would be exempt from tariffs due to be introduced in response to the latest U.S tariffs.
From the UK, the Court of Sessions overturned its original ruling on the lawfulness of Johnson’s suspension of Parliament. Another blow for the Brexiteer Prime Minister was also a positive for the majors.
It was a particularly quiet day on the Eurozone economic calendar on Wednesday, with no material stats out of the Eurozone to provide the majors with direction.
From the U.S, August wholesale inflation figures had a muted impact on the European majors late in the session, in spite of a pickup in inflationary pressures. The numbers are unlikely to have an influence on the FED’s interest rate decision next week. Month-on-month, the core producer price index rose by 0.3% in August, reversing a 0.1% fall in July.
The Market Movers
From the DAX, the positive trade news from China provided tech stocks with support. Infineon Tech led the way, rallying 3.16%, with Wirecard rising by 1.87%.
It was a mixed day for the banks on Wednesday, with the prospects of lower interest rates negative for net interest margins and the bottom line. Deutsche Bank rose by just 0.08%, while Commerzbank fell by 0.97%.
For the auto sector, it was also a mixed bag. Continental and BMW saw red on the day, falling by 0.19% and by 0.02% respectively. Daimler and Volkswagen bucked the trend, rising by 1% and by 0.69% respectively.
From the CAC, it was a mixed day for the banks. Soc Gen bucked the trend on the day, rising by 0.47%. BNP Paribas and Credit Agricole joined Commerzbank in the red, with losses of 0.56% and 1.11% respectively. Things were no much better for the auto sector. Renault fell by 1.04%, with Peugeot declining by 0.64%.
On the VIX Index
The VIX Index saw red for a 6th day in 7 on Wednesday, falling by 3.95% to end the day at 14.6.
Pressure on the VIX persisted off the back of the news from China on trade tariffs and the continued hope of support from the ECB and the FED.
The Day Ahead
It’s a particularly busy day on the Eurozone economic calendar. Finalized August inflation figures out of France and the Eurozone’s July industrial production figures are due out in the early part of the session.
Barring deviation from prelim inflation figures, the market focus will be on the industrial production figures.
Any major moves will likely be short-lived, however, as the markets hold out for the ECB monetary policy decision this afternoon.
A rate cut and reintroduction of an asset purchasing program would be considered the best outcome for the majors. The more dovish the better. There is a lot riding on Draghi delivering, which does leave the majors exposed to a certain degree.
From the U.S, August inflation figures will likely play second fiddle to the ECB on the day.
In the futures markets, at the time of writing, the DAX was up by 78.5 points, with the Dow Mini was up by 152 points. In the early hours of this morning, news of the U.S delaying fresh tariffs on $250bn worth of Chinese goods to 15th October provided further support to majors.