European Equities: Stats and Trade Talk to Wrap Up the Week

A Thursday speed bumps? Economic data out of the EU and U.S and trade war chatter remain the key drivers today.
Bob Mason
Light Board

Economic Calendar:

Friday, 7th June

  • German Industrial Production m/m) (Apr)
  • German Trade Balance (Apr)

The Majors

The European majors saw red for the 1st time in the week on Thursday. Leading the way down was the CAC40, which fell by 0.26%, closely followed by the DAX30 that ended the day down by 0.23%. The EuroStoxx600 saw a more modest loss of just 0.02% on the day.

In spite of the Thursday pullback, the majors have managed to claw back some of last week’s losses, assuming that there’s no meltdown later today.

While the U.S majors found support on hopes that tariffs on Mexico would be delayed to allow talks to continue, the European majors suffered at the hands of the ECB.

The Stats

Economic data was on the lighter side on Thursday. German factory orders provided direction ahead of finalized Eurozone GDP numbers for the 1st quarter.

German factory orders increased by 0.3% in April, coming in ahead of a forecasted 0.1%, whilst softer than an upwardly revised 0.8% increase in March.

According to figures released by Destatis,

  • Domestic orders increased by 0.8%, with foreign orders rising by 1.1% in April, month-on-month.
  • New orders from the Euro area fell by 5.8%, while new orders from other countries increased by 5.7%.
  • The monthly increase was attributed to a 0.9% increase in orders for capital goods and a 0.1% increase in new orders for consumer goods.
  • A 0.4% fall in new orders for intermediate goods was a drag in April.

Finalized Eurozone GDP numbers for the 1st quarter were in line with prelim figures, which had a muted impact on the majors as focus shifted to the ECB.

The ECB

In line with expectations, the ECB held interest rates at 0%, margin facility lending at 0.25% and deposit facility rates -0.4%. While the ECB held rates unchanged, forward guidance shifted. The ECB announced that it will leave rates unchanged at least until the first half of next year. This was extended beyond a previous hold through 2019.

While the forward guidance was unexpected, the ECB delivered on its round 3 of LTLRO, which provided initial support for the majors in spite of a rise in the EUR.

The extended hold on rates through to mid-2020 ultimately weighed, however, pulling the majors into the red. The ECB maintained a dovish tone, with Draghi giving assurances that the ECB would do more should the need arise but it wasn’t vintage Draghi jawboning.

In a rare occurrence, the EUR actually gained 0.49% on ECB press conference day, in spite of the rollout of round 3 of the TLTRO and negative sentiment towards the economy.

The Market Movers

It was a relatively choppy day for the DAX. The DAX had found support from better than expected factory orders numbers out of Germany and improved sentiment towards the Trump trade war. The ECB ultimately weighed. The DAX saw a 0.8% gain reverse to a 0.68% loss before finding support late in the day.

Bank and auto stocks were once in the firing line. Deutsche Bank and Commerzbank fell by 2.48% 1.28% respectively. Daimler and BMW were also amongst the worst performing stocks, falling by 0.93% and by 0.6% respectively. Continental saw more modest losses of 0.24%, with Volkswagen down by just 0.13%.

From the CAC, BNP Paribas slid by 1.74%, with Credit Agricole also seeing heavy losses, down by 1.68%. Renault was the worst performer on the day. Renault slid by 6.41% on news of Fiat Chrysler pulling out of merger talks.

The Day Ahead

It’s a relatively busy day on the economic calendar.

On the data front, German and French industrial production figures and trade data are due out.

We can expect the focus to be on the German numbers due out ahead of the market open.

From outside of the Eurozone, U.S nonfarm payroll and wage growth figures will also provide direction later in the day. Weak numbers would support a sooner rather than later move by the FED…

At the time of writing, the DAX30 was up 60.5 points, with the Dow Mini up by 27 points.

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