European Equities: Stats and Brexit Chatter to Set the Early Tone

The Majors

It was yet another mixed day for the European majors on Wednesday. Bucking the trend on the day was the DAX, which managed a 0.08% rise. In contrast, the EuroStoxx600 and CAC fell by 0.12% and by 0.09% respectively.

Economic data released through the Asian session included prelim March inflation figures out of Spain and Germany, and the Eurozone’s March business confidence figures.

While the stats were skewed towards the negative, with inflation figures coming up short of forecasts and business confidence easing, positive sentiment towards the U.S – China trade talks provided much-needed support through the day.

Following Draghi’s dovish tones on Wednesday, expectations that the ECB will make a move should the need arise provided some relief. It remains to be seen, however, whether the ECB would, in fact, deliver a tiered deposit rate system that has been floated about this week.

As banks currently have to pay the ECB for deposits, the ECB has talked of a review of the current structure. Banks are at the wrong end of an economic slowdown and for banks to have to pay for deposits is a blow to both earnings and stock performance.

In spite of the talk of a tiered deposit rate structure, where certain deposits would not require funding, bank stocks were in the red on Thursday.

Bank stocks were amongst the worst performing on the day. Deutsche Bank fell by 3.07%, while Commerzbank slid by 3.57%. There’s been plenty of talk about a merger between the two European giants. Pressure on Thursday came off the back of news that Deutsche Bank may look to raise capital to fund the merger.

The Day Ahead

Economic data scheduled for release out of the Eurozone is on the heavier side this morning.

Of greatest influence will likely be France and Germany’s consumer spending and Germany’s unemployment figures. Any weaker than forecasted figures, out of Germany in particular, could limit the upside on the day.

While we would expect the numbers to have an impact, sentiment towards the U.S – China trade talks will be a key driver.

Later in the day, chatter from UK Parliament on Brexit could also influence should there be signs of yet another vote going against Theresa May.

Improved sentiment through the U.S session spilled into the Asian session this morning, supporting appetite for riskier assets. At the time of writing, the DAX30 futures was up by 48.5 points. By contrast, the CAC40 futures was down by 4.5 points.

While the U.S futures were also sitting in positive territory, the U.S Treasury 3-month/10-year yield curve remained inverted. The inversion will continue to raise concerns over the economic outlook. FED chatter later in the day could have an influence on risk sentiment. For now, the markets are finding support from optimism over trade talks and supportive policy chatter from central banks. A remove of either could put the majors into reverse.