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European Equities: Tensions in the Middle East to Limit any Early Rebound

Uncertainty over how the U.S will respond to the strike on Saudi oil fields will test the majors early. There’s also Brexit to factor in…
Bob Mason
List of stock market indices

Economic Calendar:

Tuesday, 17th September

  • German ZEW Current Conditions (Sep)
  • German ZEW Economic Sentiment (Sep)
  • Eurozone ZEW Economic Sentiment (Sep)

Wednesday, 18th September

  • Eurozone Core CPI (YoY) (Aug) Final
  • Eurozone CPI (YoY) (Aug) Final
  • Eurozone CPI (MoM) (Aug)

Friday, 20th September

  • German PPI (MoM) (Aug)

The Majors

For the DAX, a run of 8 consecutive days in the green came to an end on Monday. Weekend news of drone strikes on Saudi oil fields did the damage on Monday, with economic data out of China doing little to divert attention.

The U.S administration was quick to blame Iran for the attack raising tensions in the region.

On the day, the DAX30 fell by 0.71%, with the CAC40 and EuroStoxx600 declining by 0.94% and 0.58% respectively.

Earlier in the day, the Hang Seng and CSI had seen red, with unrest in HK and weak economic data out of China adding to the market angst.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Monday. Key stats were limited to finalized August inflation figures out of Italy.

According to istatis, consumer prices rose by 0.4% in August, month-on-month, which was softer than a prelim and forecast of 0.5%. Consumer prices had stayed flat in July.

The annual rate of inflation also came in at 0.4%, which was also softer than a prelim and forecast of 0.5%.

From the U.S, the NY Empire State Manufacturing Index slipped from 4.8 to 2.0. Economists had forecast a fall to 4.0.

According to the September survey,

  • The new orders sub-index fell by 3.2 points to 3.5, with optimism sliding by 12 points to 13.7.
  • On the positive front, however, was a rise in the index for the number of employees, which rose by 11.3 points to 9.7.
  • Forward-looking indicators were not much better, with the new orders sub-index falling by 9.8 points to 21.9.
  • In contrast to the current conditions sub-index, the employment sub-index fell by 9 points to 12.1.

In spite of the negative numbers, the stats had a muted impact on the European majors, which saw red from the open in response to the strikes on Saudi oil fields.

The Market Movers

From the DAX, the auto sector saw red to partially reverse solid gains from last week. Daimler and Continental led the way, falling by 1.03% and 1.27% respectively. Volkswagen and BMW saw more modest losses, both ending the day down by 0.09%.

It was also a bearish day for the banks. Deutsche Bank slid by 1.64%, while Commerzbank tumbled by 3.28%.

From the CAC, it was also a poor day for the banks. BNP Paribas led the way down, falling by 1.69%. Credit Agricole and Soc Gen weren’t far behind, declining by 1.09% and by 1.04% respectively. Things were not much better for the auto sector. Renault and Peugeot fell by 1.53% and 0.17% respectively.

The best performers on the CAC40 were Total and TechnipFMC, which rallied by 2.5% and by 4.57% respectively, supported by the spike in oil prices.

On the VIX Index

The VIX Index saw only its 2nd day in the green in 10 days on Monday, rising by 7.3% to end the day at 14.7.  The attacks on Saudi oil fields and unrest in HK, combined with disappointing economic data out of China delivered the upside.

With the U.S blaming Iran for the strike, pressure on the U.S administration to retaliate will likely be on the rise in the weeks ahead.

The Day Ahead

It’s a busier day ahead on the Eurozone economic calendar. Economic data includes September ZEW economic sentiment figures out of Germany and the Eurozone.

We can expect the numbers to provide direction through the early part of the session. Dire numbers will unlikely drive a sell-off, however, following last week’s ECB monetary policy decision and shift in U.S and China trade war rhetoric.

Out of the U.S, August industrial production figures should have a muted impact on the majors, barring particularly weak figures.

On the geopolitical front, while the U.S affirmed to the Saudis that Iran was responsible for the strikes, there has yet to be any retaliation.

The Saudis will likely hold off until the U.S support arrives, though there is some uncertainty over whether the U.S will want to be drawn into yet another conflict.

For the majors, the very uncertainty of what the immediate future holds for Iran will be a test on the day.

While the Middle East is the melting pot, there is also Brexit and Borish Johnson to factor in.

In the futures markets, at the time of writing, the DAX was flat, while the Dow Mini was up by 15 points.

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