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European Equities: Risk Appetite and German Business Sentiment Figures to Test the Majors

The futures point to the red as the markets react to Apple’s profit warning. German business sentiment figures will be another test later today.
Bob Mason
economy up and down

Economic Calendar:

Tuesday, 18th February 2020

German ZEW Current Conditions (Feb)

German ZEW Economic Sentiment (Feb)

Eurozone ZEW Economic Sentiment (Feb)

Thursday, 20th February

German PPI (MoM) (Jan)

GfK German Consumer Climate (Mar)

French CPI (MoM) (Jan) Final

French HICP (MoM) (Jan) Final

Friday, 21st February

French Manufacturing PMI (Feb) Prelim

French Services PMI (Feb) Prelim

German Manufacturing PMI (Feb) Prelim

German Services PMI (Feb) Prelim

Eurozone Manufacturing PMI (Feb Prelim)

Eurozone Markit Composite PMI (Feb) Prelim

Eurozone Services PMI (Feb) Prelim

Italian CPI (MoM) (Jan) Final

Eurozone Core CPI (YoY) (Jan) Final

Eurozone CPI (MoM) (Jan) Final

Eurozone CPI (YoY) (Jan) Final

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The Majors

It was a relatively bullish start to the week, with the European majors ending a run of 2-consecutive days in the red. The EuroStoxx600 led the way, rising by 0.30%, with the CAC40 and DAX30 gaining 0.29% and 0.27% respectively.

Support came from the Asian session and the CSI300, which jumped by 2.25%,  supported by stimulus news.

The PBoC announced that banks will be permitted to allow NPLs to rise, while the government announced plans to reduce corporate taxes and fees.

On Thursday, the PBoC is back in action, with loan prime rates also expected to be cut to provide further support.

Both Singapore and HK governments also announced fiscal stimulus plans to mute the effects of COVID-19 on the respective economies.

For the DAX30, a fresh record high in the day came in spite of the effects of COVID-19 likely to be far greater than initially projected.

Expectations had been for economic conditions to begin improving through the 2nd quarter. The continued spread and upward trend in deaths suggest that the Chinese government clampdown may need to continue for the foreseeable future.

After some particularly dire economic data out of the Eurozone of late, an extended economic slowdown would test current levels…

The Stats

It was a particularly quiet day on the Eurozone economic calendar on Monday. There were no material stats from the Eurozone to provide the majors with direction

A marked contraction in the Japanese economy failed to spook the markets going into the open.

COVID-19 figures from the weekend continued to reflect a slower spread of the virus, which was market risk positive.

Later in the day, the U.S markets were closed for President’s Day, leaving volumes on the lighter side.

One positive for the European majors is that the U.S President may need to step back from the talk of tariffs on the EU near-term.

The Market Movers

For the DAX: it was a bullish day for the auto sector on Friday. BMW, Continental, and Volkswagen led the way down, with gains of 1.14%, 1.24%, and 1.17% respectively. Daimler saw a more modest gain of 1.01%.

It was another mixed day for the banks, however. Commerzbank rallied by 2.12%, while Deutsche Bank fell by -0.02% on the day.

Deutsche Lufthansa found further support, rising by 0.30%.

From the CAC, it was a bullish day for the banks. BNP Paribas and Soc Gen rose by 0.93% and 0.65% respectively, with Credit Agricole up by 1.07%.

It was a mixed day for the auto sector, however. Peugeot rose by 0.98% while Renault slid by 4.26% as the markets continued to react to the dire earnings results.

Air France-KLM struggled at the start of the week, with a 0.69% fall on the day.

On the VIX Index

There were no prices for the VIX and the U.S equity markets, with the U.S markets closed on Monday for President’s Day.

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. ZEW economic sentiment figures are due out of Germany and the Eurozone.

The February figures will give some idea of business sentiment towards the spread and anticipated impact of COVID-19 on Germany’s economy.

Later in the day, NY Empire State Manufacturing Index numbers for February will also influence.

Economic indicators are not expected to impress as the spread of COVID-19 weighs on growth. Expect updates from China and beyond on new cases to continue to influence.

While the economic indicators are expected to reflect deteriorating economic conditions, the continued hope of stimulus will likely mute the effect of softer numbers for now at least.

Apple Inc.’s profit warning on Monday, however, was a reminder of what impact the spread of the virus may have…

EU member states may well need to loosen the purse strings to support the majors at current levels…

In the futures markets, at the time of writing, the DAX was down by 45.5 points, with the Dow down by 71 points.

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