European Equities: The FED and FED Chair Powell the Key Drivers Today

The Majors

It was a bearish start to the week for the European majors on Monday, with the CAC40 falling by 0.49% to lead the way. The DAX30 and EuroStoxx600 saw more modest losses of 0.32% and 0.27% respectively.

Things could have been far worse, however, with the majors kicking off the day deep in the red. The DAX had been down by as much as 2.94% before briefly visiting positive territory late in the day.

Market fears over the threat of a 2^nd wave of the coronavirus pandemic weighed on risk appetite through much of the day.

In recent days, reports had hit the wires of a cluster in Beijing and a spike in new cases across a number of U.S states that have reopened for business.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Monday. Key stats included finalized inflation figures out of Italy for May and April’s Eurozone trade figures.

According to Eurostat,

• In April, the Eurozone’s trade surplus narrowed from €28.2bn to €2.9bn. In April 2019, the trade balance stood at €15.5bn.
• Exports of goods to the rest of the world fell by 29.3% to €136.6bn when compared with April 2019.
• Imports of goods from the rest of the world declined by 24.8% to €133.7bn.
• Intra-euro area trade fell by 32.2% to €112.4bn when compared with April 2019.

On the inflation front, finalized May inflation figures from Italy had a muted impact on the majors. In May, consumer prices fell by 0.2%, which was worse than a prelim 0.1% decline. In April, consumer prices had risen by 0.1%.

From the U.S

June stats were in focus, with the NY Empire State Manufacturing Index rising from -48.5 to -0.20 in June. Economists had forecast a rise to -27.5.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Friday. Daimler fell by 0.40% to buck the trend on the day. Continental and Volkswagen led the way, however, rallying by 2.96$ and by 2.52% respectively. BMW saw a more modest 0.73% gain.

It was also a mixed day for the banks. Deutsche Bank eked out a 0.25% gain, while Commerzbank fell by 0.60%.

Deutsche Lufthansa returned to the bottom of the table on Monday, with a 2.0% loss. The losses came in spite of EU member states beginning to open borders.

From the CAC, it was back into the red for the banks. BNP Paribas and Soc Gen fell by 1.93% and by 2.42% to lead the way down. Credit Agricole saw a more modest 0.81% loss on the day.

Things were not much better across the auto sector following Friday’s gains. Peugeot and Renault ended the day with losses of 1.11% and 0.48% respectively.

Air France-KLM also returned to the red, falling by 3.00%, while Airbus SE rose by 1.57% to join the front runners on the day.

On the VIX Index

It was a 2^nd consecutive day in the red for the VIX on Monday, which fell by 4.68%. Following on from an 11.52% slide on Friday, the VIX ended the day at 34.4.

Market fears of a 2^nd wave pandemic weighed heavily on the U.S majors going into the open. It was the FED that came to the rescue, however.

On Monday, the FED announced that it would start buying individual corporate bonds in addition to ETFs. With the U.S President’s 2^nd term hanging on the equity markets avoiding a sell-off, the timing of the FED’s decision to branch out was an interesting one…

On the day, the S&P500 rose by 0.83%, with the Dow and the NASDAQ gaining 0.62% and by 1.43% respectively.

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Key stats include June’s ZEW economic sentiment figures from Germany and the Eurozone.

Finalized May inflation figures from Germany and 2^nd quarter wage growth figures are also due out in the day.

The markets may well brush aside the stats, however, in response to the FED’s announcement on Monday.

From the U.S

It’s a busy day ahead, with May retail sales and industrial production figures likely to garner plenty of attention. With the U.S in search of a service sector-driven economic recovery, expect retail sales figures to influence.

Away from the stats, however, FED Chair Powell’s testimony to congress late in the day will be the key driver on the day.

Powell may need to respond to questions over the FED’s decision to dive into corporate bonds to prop up the U.S equity markets… Impartiality has already been an issue, the latest move could lead to more questions over White House influence…

Early support did kick in, however, following the FED’s Monday announcement to purchase individual corporate bonds.

The Latest Coronavirus Figures

On Monday, the number of new coronavirus cases rose by 115,910 to 8,100,342. On Sunday, the number of new cases had risen by 124,839. The daily increase was lower than Sunday’s rise while up from 102,703 new cases from the previous Monday.

Germany, Italy, and Spain reported 855 new cases on Monday, which was down from 909 new cases on Sunday. On the previous Monday, 783 new cases had been reported.

From the U.S, the total number of cases rose by 19,412 to 2,181,556 on Monday. On Sunday, the total number of cases had risen by 19,920. On Monday, 8^th June, a total of 18,206 new cases had been reported.

The Futures

In the futures markets, at the time of writing, the DAX was up by 284.5 points, with the Dow up by 239 points.

For a look at all of today’s economic events, check out our economic calendar.