European Equities: It’s Going to be Another Choppy Day Ahead

Trump saved the day for the European majors on Wednesday. There’s a lot now riding on a resolution to trade disputes…
Bob Mason
List of stock market indices

Economic Calendar:

Thursday, 16th May

  • Italian CPI (MoM) (Apr) Final
  • Eurozone Trade Balance (Mar)

Friday, 17th May

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

The Majors

It was a choppy day for the majors on Wednesday and it took more than economic data to deliver a 2nd consecutive day of gains.

The DAX led the way, rising by 0.9% to move into positive territory for the current week. Elsewhere, the CAC40 gained 0.62%, with the EuroStoxx600 rising by 0.46%.

In spite of a 2nd consecutive day in the green, the EuroStoxx600 remained deep in the red for the current week, down by 1.09%. The CAC40 had managed to move back into the green for the week during Tuesday’s rebound.

It could have been a completely different story had there been no trade chatter from the Oval Office. The European majors had been in the red until the final 2-hours of the session.

Once more the U.S President looked to ease market jitters over protectionism and the threat of a global trade war and, once more the markets responded.

This time around Trump’s comments targeted the EU. News hit the wires of Trump planning to delay the rollout of tariffs on EU auto tariffs for up to 6-months. Simmering under the surface had been a concern that the U.S President would kick off a trade war with the EU as the U.S progressed with China.

While the latest news was positive on the day, it does suggest that even the U.S President is mindful of the impact that the U.S – China trade war is having on the global economy.

The DAX was down by 0.57% ahead of the EU auto tariff news hitting the wires…

The Stats

On the data front, things were relatively balanced.

Key stats included Germany and the Eurozone’s 1st GDP figures along with French finalized April inflation figures.

While French inflation numbers came in ahead of prelim, the focus had been on Germany and the Eurozone’s GDP numbers.

Eurozone 2nd estimate GDP numbers were in line with 1st estimate figures, which provided support, though weaker than forecasted year-on-year GDP numbers out of Germany offset any positive sentiment from the stats.

It could have been worse, however. The German economy had stalled in the 4th quarter, so a 0.4% growth rate in the 1st quarter was not so bad when considering the negative bias in the stats since the start of the year.

According to figures released by Destatis, the Germany economy grew by 0.6% compared with a year earlier. In the 4th quarter, the economy grew by 0.9% and by 1.1% in the 3rd quarter of last year.

From elsewhere, economic data out of China tested risk sentiment from the start of the day. Particularly disappointing industrial production and retail sales figures for April did the damage ahead of the European open.

Economic data out of the U.S had added to the negative sentiment. Retail sales fell in April and core retail sales came up well sort of forecasts. Also adding to the negative sentiment was an unexpected 0.5% fall in industrial production at the start of the 2nd quarter.

The Market Movers

On the DAX, it came as little surprise that the auto sector was the primary beneficiary of Trump’s latest comments.

BMW led the way on the DAX30, surging by 3.14%. Continental and Daimler weren’t far behind, with gains of 2.5% and 2.31% respectively. Volkswagen trailed the pack, rising by just 0.7%.

In spite of the positive sentiment towards the auto sector, the European banks failed to benefit. Commerzbank and Deutsche Bank fell by 1.06% and by 0.1% respectively. On the CAC40, BNP Paribas fell by 0.49%, with Italy’s UniCredit S.p.A ending the day down 0.67%.

Pressure on the sector came from corporate earnings results. Both Credit Agricole and ABN AMRO released disappointing results. A rebound in the German economy failed to boost sentiment towards the economic outlook.

For now, the EU may have been spared from auto tariffs, but the U.S – China trade war is inflicting enough damage of its own. The slump in China’s retail sales in April alone should be an alarm bell. April trade data out of China had suggested strong domestic demand. The retail sales figures question the view…

The Day Ahead

It’s a particularly quiet day ahead on the economic data front. Italy’s finalized April inflation figures and the Eurozone’s March trade data are due out later this morning.

While the markets will likely brush aside the inflation numbers, the trade figures will garner some attention. There’s been plenty of dovish chatter of late, which has not been surprising when considering the stats coming out of the Eurozone.

While improving numbers will ease any immediate concerns over the economy, the outlook may remain clouded, however. The extended U.S – China trade war is weighing on the global economy and the Eurozone is far from buffered from any weakness in China or the U.S economies.

It goes without saying that the majors will remain beholden to the Oval Office and Beijing through the day. Easing up on the EU, while cranking it up against China should also be considered a negative for risk appetite…

From elsewhere, while there were no stats out of China to rock the boat ahead of the European open. Philly FED manufacturing numbers from the U.S will have an impact later today. If they’re anything like the NY Empire State numbers, the majors could breathe a sigh of relief…

At the time of writing, the DAX30 was down by 53.5 points. The U.S futures were also pointing towards a negative open. The Dow Mini was up by 36 points.

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