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European Equities: The Brexit Bill and German Business Sentiment in Focus

By:
Bob Mason
Published: Dec 18, 2019, 00:50 UTC

It's a busier day on the economic calendar, which should provide some direction, though ultimately, the focus will likely remain on UK Parliament.

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Economic Calendar:

Wednesday, 18th December 2019

  • German PPI (MoM) (Nov)
  • German Ifo Business Climate Index (Dec)
  • Eurozone Core CPI (YoY) (Nov) Final
  • Eurozone CPI (YoY) (Nov) Final
  • Eurozone CPI (MoM) (Nov) Final

Friday, 20th December 2019

  • GfK German Consumer Climate (Jan)
  • French Consumer Spending (MoM) (Nov)
  • Eurozone Consumer Confidence (Dec) Prelim

The Majors

The European majors failed to make it 5 consecutive days in a row, with the DAX30 falling by 0.89% to lead the way down. Following a record high on Monday, the EuroStoxx600 fell by 0.68%, with the CAC40 ending the day with a 0.39% loss.

Geopolitics was back in focus on Tuesday, with British Prime Minister Johnson’s plans to remove any chance of an extension to the Brexit transition period weighing.

Holding a Parliamentary majority, Johnson is looking to amend the Brexit Bill to prevent any extension beyond December 2020. This would mean that no further time would be given to complete any ongoing negotiations on trade, which could result in a hard Brexit.

The view on the street is that Britain and the EU would need more than a year to complete a trade deal.

The Stats

It was a quieter day on the Eurozone economic calendar on Tuesday. Key stats were limited to the Eurozone’s October trade figures.

According to Eurostat,

  • The Eurozone’s trade surplus widened from €18.7bn to €28.0bn, coming in well above a forecast of €17.0bn.
  • Exports of goods to the rest of the world rose by 4.1%, year-on-year, to €217.9bn.
  • Imports from the rest of the world fell by 3.2%, year-on-year, to €189.9bn.
  • Intra-euro area trade fell by 1.4% to €174.9bn in October.

The better than anticipated figures failed to move the dial, however, with the markets focused on UK politics.

From the U.S

Industrial production rose by 1.1%, month-on-month, providing support as the majors struggled through the European session. Economists had forecast a 0.8% increase, following a 1.3% slide in October.

The European majors did manage to move into positive territory, all too briefly, before a late pullback…

The Market Movers

For the DAX: It was another mixed day for the auto sector. Volkswagen and BMW fell by 0.70% and by 1.24% respectively. Continental and Daimler rose by 0.60% and by 0.08% respectively.

It was also a mixed day for the banks. Commerzbank fell by 0.53%, while Deutsche Bank gained 1.07%.

From the CAC, it was a bearish day for the banks. BNP Paribas led the way down, falling by 0.53%. Credit Agricole and Soc Gen saw more modest losses of 0.19% and 0.02% respectively.

The French Auto sector found further support, however, with Peugeot and Renault rising by 0.87% and by 1.29% respectively.

On the VIX Index

The VIX rose by 1.24% on Tuesday, bringing to an end a run of 5 consecutive days in the red. Partially reversing a 3.88% decline from Monday, the VIX ended the day at $12.3

The upside came in spite of the U.S majors eking out gains on the day, with negative sentiment towards Brexit providing support.

VIX 18/12/19 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Business sentiment figures for December are due out Germany ahead of finalized Eurozone inflation numbers.

Expect the Ifo Business Climate Index to have the greatest impact on the European majors on the day.

From the U.S, there are no material stats to influence, leaving the majors in the hands of geopolitics later in the day.

On the geopolitical front, expect Brexit chatter to remain in focus as the markets look towards the timing of the Parliamentary vote on Johnson’s Brexit Bill amendment…

In the futures markets, at the time of writing, the DAX30 was down by 21 points, with the Dow down by 6 points.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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