European Equities: Manufacturing PMIs and Geopolitics in Focus

The Majors

It was a positive end to a bullish week for the European majors on Friday. Leading the way on the day was the DAX, which rose by 0.85% to end the week up by 2.82%. Gains from the week were not enough to pull the index into the green for the month, however. The DAX ended August down by 2.05%.

For the CAC40 and EuroStoxx600, the pair rose by 0.56% and by 0.73% respectively. A 2.88% weekly gain left the CAC40 down by just 0.7% for August. The EuroStoxx600 gained 2.19% to end the month down by 1.63%.

Support for the majors continued into Friday following comments from the Chinese government on Thursday, assuring the markets that they would not escalate the trade war with the U.S.

The Stats

It was a busy day on the Eurozone economic calendar on Friday.

Key stats included German retail sales figures and prelim August inflation figures out of France, Italy, and Germany.

A larger than expected 2.1% slide in retail sales did little to peg back the DAX on the day. A lack of inflationary pressure across the Eurozone provided further support to the majors on the day.

The Eurozone’s core annual rate of inflation held steady at 0.9%, coming up short of a forecasted pick up to 1%.

From the U.S, the FED’s preferred Core PCE Price Index also held steady at 1.6%, falling well short of the FED’s target, supporting a September rate cut.

On the positive, personal spending rose by 0.6% following a 0.3% rise in June, with the Chicago manufacturing sector seeing expansion once more. The PMI rose from 44.4 to 50.4 in August.

The Market Movers

From the DAX, The German auto sector was amongst the leading sectors on the day. Daimler and Continental led the way with gains of 1.76% and 1.03% respectively. Volkswagen and BMW weren’t far behind with gains of 0.77% and 1% respectively.

Deutsche Bank and Commerzbank also benefited from the upward momentum on the day. The pair rose by 0.75% and by 0.39% respectively.

From the CAC, it was also a positive day for the banks. Credit Agricole gained 1.17%, with Soc Gen and BNP Paribas up by 0.88% and 0.51% respectively. From the auto sector, Renault and Peugeot gained 0.68% and 1.83% respectively.

While the majors found support on the day, a late pullback limited the day gains. Negative comments from Italy on the anticipated Five Star Movement and Democratic Party coalition weighed late in the day.

The FTSEMIB hit reverse late in the session to end the day with a 0.35% loss. The leader of the Five Star Movement said on Friday that a snap election could still take place as he laid out his party demands to the Democratic Party.

UniCredit S.p.A was amongst the heavy losers on the day, falling by 1.14%.

On the VIX Index

The VIX Index bounced back on Friday, rising by 6.15% to end the month at 19. For August, a weekly loss of 4.52% left the Index up by 18%.

While the markets found continued support from China’s assurances that it would not escalate the trade war with the U.S, Italian politics hit the markets late on.

The Day Ahead

It’s a busy start to the week on the Eurozone economic calendar. August Private Sector PMIs are due out for Spain, Italy, France, Germany, and the Eurozone.

Barring a deviation from prelim figures for France and Germany, the focus will likely be on Italy and the Eurozone’s PMI numbers.

Weak economic data out of Italy, coupled with political uncertainty would test the majors at the start of the week.

With the U.S markets closed on the day, geopolitical risk will also influence. There’s the U.S – China trade war and fresh tariffs on $112bn worth of China goods to consider, coupled with Brexit.

Earlier in the day, China’s manufacturing sector returned to expansion in August. The Caixin Manufacturing PMI came in at 50.4, providing much-needed support to the markets early on in the day.

In the futures markets, at the time of writing, the DAX was up by 13 points, while the Dow Mini was down by 74 points. China’s PMI pulled the DAX into positive territory, whilst also reducing the Dow Mini’s early losses.