European Equities: Private Sector PMI Numbers in the Driving Seat

The Majors

The European majors ended the day in the green on Thursday. Leading the way was the DAX30, which rose by 0.38% to lock in a 2.14% gain for the current week. Close behind were the CAC40 and EuroStoxx600, which rose by 0.31% and by 0.36% respectively.

A 4^th consecutive day of gains for the CAC40 delivered a 3.13% gain for the current week, Monday through Thursday.

The promise of monetary policy support from the ECB and a material shift in the FED’s monetary policy outlook contributed to the upward moves.

Hopes of a resolution to the U.S – China trade dispute at next week’s G20 Summit also supported on the day.

On the geopolitical risk front, news of Iran shooting down a U.S drone had a relatively muted impact on the majors, whilst providing support to crude oil prices.

The Stats

Economic data out of the Eurozone was on the lighter side on Thursday.

In the early part of the session, the ECB Economic Bulletin provided further guidance on how the ECB views the economic outlook. The theme was largely unchanged, with the ECB projecting global growth to decelerate this year. A projected decline was attributed to high and rising policy and political uncertainty, coupled with the effects of the U.S – China trade war.

The Euro area overview,

• Incoming economic data and survey information point to weaker growth in the 2^nd and 3^rd quarters of this year.
• Euro area services and construction sectors have shown resilience and labor market conditions continue to improve.
• Economic expansion will continue to be supported by favorable financing conditions and a mildly expansionary euro area fiscal stance.
• Improving labor market conditions and rising wages are also expected to support.

Macroeconomic projections for the Euro area:

• The ECB projects the economy to grow by 1.2% in 2019, by 1.4% next year and by 1.4% in 2021.
• Compared with the March forecasts, growth for this year was revised up by 0.1 percentage points. Growth for next year was revised down by 0.2 percentage points.
• Risks to the Euro area growth outlook remain tilted to the downside.

Later in the European session, Eurozone consumer confidence figures failed to provide support. According to prelim figures, the Eurozone consumer confidence index fell from -6.5 to -7.2 for June.

From the U.S

The Philly FED Manufacturing Index numbers also disappointed. According to the June report, the Index fell from 16.6 to 0.3. In spite of the weak headline number, the survey’s future activity indexes showed some improvement, whilst remaining lackluster.

• For the month of June, the current new orders index fell by 3 points, while the shipments index fell by 11 points.
• In spite of the fall in current new orders, firms continued to report increases in employment, while the employment index fell from 18.2 to 15.4.
• The future new orders index increased by 10 points, with the future shipments index increasing by 13 points.
• The survey also pointed to a moderation in price pressures.

The Market Movers

From the DAX, Infineon Tech led the way, rallying by 3.75% as trade war jitters eased ahead of the weekend. The shift in sentiment towards the U.S – China trade war also provided support to the auto sector.

Volkswagen led the way on the day, rising by 1.21%. BMW (+0.87%) and Continental (0.70%) also made solid gains following the upside on Wednesday. Daimler trailed the pack, rising by just 0.39% on the day.

Things were less rosy for the banking sector, however. Deutsche Bank fell by 0.87%, while Commerzbank tumbled by 3.37%.

From the CAC40, BNP Paribas and Credit Agricole also saw heavy losses on the day, falling by 1.91% and by 2.93% respectively.

Talks of an FBI investigation into Deutsche Bank for money laundering contributed to the downside across the sector.

The Day Ahead

It’s a particularly busy day ahead on the economic calendar.

Prelim private sector PMI numbers for France, Germany and the Eurozone are due out in the early part of the day.

While ECB President Draghi assured the support of the ECB should things fail to improve, the majors will remain sensitive to the numbers.

It’s not just the Euro area economy that’s struggling and, while the Trump and Xi will meet next week, an immediate resolution to the ongoing trade war is unlikely.

The quarter is rapidly coming to an end and forecasts are for the economy to slow further in the current quarter and the next.

Outside of the Eurozone, U.S private sector PMIs will also be in focus.

How long the markets can benefit from the promise of monetary policy easing remains to be seen…

At the time of writing, the DAX was down by 11 points. The Dow Mini was down by 20 points.