European Equities: The Majors Are in for another Choppy Day Ahead

It’s going to be another choppy day ahead, with trade talk and economic data to influence risk sentiment.
Bob Mason
Light Board

Economic Calendar:

Tuesday, 4th June

  • Spanish Unemployment Change
  • Eurozone CPI y/y (May) Prelim
  • Eurozone Core CPI y/y (May) Prelim
  • Eurozone Unemployment Rate (Apr)

Wednesday, 5th June

  • Spanish Services PMI (May)
  • Italian Services PMI (May)
  • French Services PMI (May) Final
  • German Services PMI (May) Final
  • Eurozone Markit Composite PMI (May) Final
  • Eurozone Services PMI (May) Final
  • Eurozone Retail Sales m/m (Apr)

Thursday, 6th June

  • German Factory Orders m/m) (Apr)
  • Eurozone GDP q/q (Q1) 3rd Estimate
  • Eurozone GDP y/y (Q1) 3rd Estimate
  • ECB Interest Rate Decision (Jun)

Friday, 7th June

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

The Majors

The European majors managed to kick off the month of June in the green. The CAC40 gained 0.65%, while the DAX30 rose by 0.56%. The EuroStoxx600 ended the day with a more modest 0.39% gain.

After spending most of the day in the red, support late on led to the DAX and CAC reversing losses from earlier in the day.

The recession alarm bells continued to ring through the day, limiting any upside for the majors, as the U.S Treasury 3-month – 10-year yield curve inversion widened to -25 bps.

Concerns over the global economy have ultimately led to the pricing in of FED rate cuts this year and a more dovish outlook as early as this month.

The majors managed to find support in spite of a 0.64% gain in the EUR on the day. News of both China and Mexico being willing to resume trade negotiations eased tensions on the day. It’s not cut and dry, however, with Beijing having already indicated that talks can only resume once the latest tariffs have been removed.

The Stats

Economic data was on the heavier side on Monday.

May manufacturing PMI numbers provided direction through the early part of the session.

According to May Markit surveys, Spain’s manufacturing PMI fell from 51.8 to 50.1, falling beyond a forecasted 51.3. Italy’s manufacturing PMI increased from 49.1 to 49.7, coming in ahead of a forecasted 48.6.

France, Germany and the Eurozone’s finalized PMI numbers were in line with prelim figures.

According to the Eurozone Manufacturing PMI survey, German continued to sit at the bottom of the table at a 2-month low.

Underperformance in Germany and across the region was attributed to an 8 consecutive monthly fall in new work received. Both domestic and export orders fell in May. At the top of the table stood Greece, with a 3-month low 54.5.

Perhaps of even greater concern for the ECB will have been the 1st net fall in payroll numbers in 57-months.

In spite of the negative conditions, business optimism rose to a 3-month high in May.

The Market Movers

On the DAX, Wirecard led the way gaining 2.87% following Friday’s 9.53% slide. ThyssenKrupp also bounced back from a 3.86% fall on Friday, rising by 1.5%.

It was far from a bullish start to June, however, with Infineon tech sliding by 8.11%. M&A news weighed on the day, with the Company announcing plans to raise capital to purchase Cypress Semiconductor Corp.

The auto sector kicked off the month mixed. BMW was the worst of the pack falling by 0.92%. Continental also saw red, falling by 0.18%, while Daimler rose by 0.39%. Volkswagen bucked the trend, rallying by 1.5%, with support coming from the news of its plans to go ahead with the Traton IPO.

The banking sector continued to struggle. Deutsche Bank and Commerzbank ended the day down by 0.98% and by 1.08% respectively.

From the CAC, BNP Paribas slipped by 0.15%, with Credit Agricole falling by 0.59%. Renault managed to stop the rot, rising by 0.61% on the day.

The Day Ahead

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

The Eurozone’s Prelim May inflation figures and April’s unemployment rate are due out later this morning. Earlier in the session, Spain’s unemployment change figures will also provide direction.

While we can expect inflation and unemployment numbers to have an influence, market sentiment towards the economic outlook will remain the key driver.

Out of the U.S, we can also expect factory orders and capitals goods order numbers to affect market risk sentiment later in the day.

U.S manufacturing figures from Monday disappointed, giving the global financial markets more to worry about ahead of this week’s ECB monetary policy decision.

At the time of writing, the DAX30 was down by 58.5 points, with the Dow Mini down by 22 points.

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