European Equities: Policy Uncertainty and Brexit to Test the Majors

It’s a relatively quiet day on the economic data front, which could test market resolve. There’s a lot riding on a dovish ECB…
Bob Mason
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Economic Calendar:

Tuesday, 10th September

  • French Non-Farm Payrolls (q/q (Q2)
  • French Industrial Production m/m (Jul)
  • Italian Industrial Production m/m (Jul)

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)

The Majors

It was a 4th consecutive day in the green for the DAX30 on Monday. Following last week’s gains, the DAX30 led the way on Monday, rising by 0.28%. Support for the DAX30 came off the back of better than expected July trade data out of Germany and from talk of a German fiscal stimulus package.

Seeing red, however, were the CAC40 and EuroStoxx600, which fell by 0.27% and 0.28% respectively.

Uncertainty over what stimulus the ECB will deliver on Thursday and how far the FED will go next week left the markets in limbo.

On the geopolitical front, Brexit and political chaos in the UK were also in focus, testing market risk appetite on Monday.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Monday. July trade data, out of Germany provided direction in the early part of the day.

According to Destatis,

  • Germany’s trade surplus widened from a revised €18.1bn to €20.2bn in July. In July 2018, the surplus stood at €16.4bn.
  • Exports rose to €115.2bn in July. Month-on-month, exports increased by 0.7% and by 3.8% year-on-year.
    • Germany exported goods to the value of €64.2bn to EU member states. Year-on-year, exports to EU member states fell by 0.5%.
    • Goods to the value of €41.3bn (-0.2%) were exported to Euro-area countries.
    • Exports of goods to countries outside of the EU rose by 9.8%, year-on-year, to €51.0bn.
  • Imports fell to €93.7bn. Month-on-month imports slid by 1.5% and by 0.9% year-on-year.
    • Germany imported €52.8bn worth of goods from EU member states. Year-on-year imports from EU member states fell by 1.6%.
    • The value of goods imported from Euro-area countries was €34.9bn (-3.4%).
    • Imports from outside of the EU fell by 0.1%.

From the U.S, there were no material stats to influence later in the day.

The Market Movers

From the DAX, the auto sector was amongst the best performers on the day. Continental led the way, rallying by 3.95%. Volkswagen (+2.54%), Daimler (+2.22%), and BMW (+1.76%) were also at the top of the table.

Bank stocks joined auto stocks on the day, with Deutsche Bank and Commerzbank rallying by 3.75% and 3.44% respectively.

From the CAC, it was a bullish day for the banks. Soc Gen led the way, rallying by 4.10%. BNP Paribas and Credit Agricole gained 2.97% and 2.75% respectively. It was also a solid day for the auto sector, Renault rose by 2.25%, with Peugeot gaining 3.48%.

On the VIX Index

It was a 1st day in the green in 5 for the VIX Index, which rose by 2% to end the day at 15.3.

With economic data on the lighter side on the day, market uncertainty over monetary policy and a lack of chatter on trade led to the gain on the day.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. 2nd quarter non-farm payroll figures are due out of France. Barring particularly dire numbers, the figures will likely have a muted impact on the majors.

The lighter day on the stats will give French and Italian industrial production figures greater weighting.

From the U.S, stats are also on the lighter side, with economic data limited to July’s JOLTs job openings. Following disappointing August nonfarm payroll figures on Friday, we can expect the numbers to have an impact late in the session.

Outside of the stats, geopolitical risk will continue to provide direction through the day. UK politics and Brexit will likely be the main area of focus.

On the monetary policy front, uncertainty over how far the ECB will go also needs considering. The markets are expecting the kitchen sink and the ECB may not be yet willing to throw in the last of its ammunition just yet.

The good news is that the German government’s latest steps to shore up the economy could spur a wave of fiscal stimulus programs. Draghi will finally get his wish. The ECB President had called on governments to deliver stimulus for years.

In the futures markets, at the time of writing, the DAX was up by 21 points, with the Dow Mini was up by 52 points.

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