European Equities: Service Sector PMIs and Geopolitics in Focus

The Majors

It was a day in the red for the majors, bringing to an end 3 consecutive days in the green. On the day, the CAC40 led the way down, falling by 0.49%, with the DAX30 and EuroStoxx600 declining by 0.36% and by 0.32% respectively.

With no material stats from the Eurozone to provide direction, the focus on the day was on U.S data and geopolitics.

Negative sentiment towards the U.S – China trade war weighed from the start of the day, as the markets responded further to the fresh tariffs on China.

On the Brexit front, an anticipated vote to force the British PM to request an extension until January 2020 left the markets cautious. The Pound fell to sub-$1.20 levels through the session, with the negative sentiment pinning the European makers back.

From Italy, there was some good news. Five Star Movement members voted in favor of forming a coalition government with the Democratic Party. A reported 79.3% of voters favored a coalition over a return to the polls.

One political crisis averted, while another brewed in Spain, however, as Prime Minister Sanchez looked to avoid yet another general election.

The Stats

It was a quiet day on the Eurozone economic calendar on Tuesday, with no material stats out of the Eurozone to provide direction.

While there were no material stats out of the Eurozone, U.S manufacturing PMI numbers provided direction late in the session.

The ISM Manufacturing PMI fell from 51.2 to 49.1 in August, which was worse than a forecasted fall to 51.0. According to the August ISM Survey,

• New orders fell by 3.6 percentage points to 47.2, with the New Export Orders Index sliding by 4.8 percentage points to 43.3.
• Off the back of a 4.3 percentage point fall in the Employment Index to 47.4, the Production Index fell by 1.3 percentage points to 49.5.
• August’s contraction brought to an end 35 consecutive months of expansion within the manufacturing sector.

Of less influence was the Markit’s Manufacturing PMI. August’s finalized PMI came in at 50.3, up from a prelim 49.9. The PMI had stood at 50.4 in July.

The Market Movers

From the DAX, it was a mixed bag for the auto sector. Daimler led the way with a 1.14% gain. In contrast, Continental was amongst the worst-performing stocks, sliding by 1.39%. BMW eked out a 0.13% gain, while Volkswagen slipped by 0.25% on the day.

For the banks, it was also a mixed day. Deutsche Bank slipped by 0.17%, while Commerzbank gained 0.35%.

From the CAC, it was also a bearish day for the banks. Credit Agricole led the way down with a 0.58% fall. Soc Gen and BNP Paribas fell by 0.33% and 0.49% respectively. From the auto sector, it was mixed. Renault gained 0.83%, while Peugeot slipped by 0.05%.

On the VIX Index

The VIX Index was on the rise once more on Tuesday, gaining 3.58% to end the day at 19.7.

Geopolitical risk coupled with disappointing manufacturing numbers out of the U.S tested the markets on the day.

Expectations are for the VIX to reflect a pickup in market volatility as trading volumes rise following the summer break.

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. August service sector PMIs are due out of Spain and Italy. Finalized August service PMIs are also due out of France, Germany, and the Eurozone, along with the Eurozone’s Composite PMI.

We would expect the Eurozone’s Composite PMI to garner the most attention.

From the Eurozone, July retail sales figure will also provide direction.

Consumer spending continues to be a key component to economic growth in the Eurozone. Weak numbers out of Germany last week suggest a slide in spending in July, which would be negative for the majors.

With stats out of the U.S limited to trade data, FOMC member chatter and geopolitical risk will influence later in the day.

In the futures markets, at the time of writing, the DAX was up by 19.5 points, with the Dow Mini was up by 44 points.