European Equities: The Majors will be at the Mercy of the Oval Office

Can the European majors avoid a sell-off? The futures markets are pointing to a positive open, which is in stark contrast to the U.S futures…
Bob Mason
List of stock market indices

Economic Calendar

Tuesday, 14th May

  • German CPI (MoM) (Apr) Final
  • Spanish CPI (YoY) (Apr) Final
  • Spanish HICP (YoY) (Apr) Final
  • German ZEW Current Conditions (May)
  • German ZEW Economic Sentiment (May)
  • Eurozone ZEW Economic Sentiment (May)
  • Eurozone Industrial Production (MoM) (Mar)

Wednesday, 15th May

  • German GDP (QoQ) (Q1)
  • German GDP (YoY) (Q1)
  • French CPI (MoM) (Apr) Final
  • French HICP (MoM) (Apr) Final
  • Eurozone GDP (YoY) (Q1) 2nd Estimate
  • Eurozone GDP (QoQ) (Q1) 2nd Estimate

Thursday, 16th May

  • Italian CPI (MoM) (Apr) Final
  • Eurozone Trade Balance (Mar)

Friday, 17th May

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

The Majors

The majors managed to close out the week on a high, though the Friday gains were not nearly enough to reverse the weekly losses.

The DAX led the way on Friday, gaining 0.72% to reduce the deficit for the week to 2.84%. The CAC and EuroStoxx600 saw more modest gains of 0.27% and 0.32% respectively on Friday, leaving the pair deeper in the red for the week.

The CAC40 ended the week down 3.99%, with the EuroStoxx600 down by 3.39%.

Economic data released through the day was limited to 1st quarter nonfarm payroll numbers out of France and March trade data out of Germany.

While a pickup in hiring was positive for the CAC, the DAX found strong support in the early part of the day. According to Destatis, Germany’s trade surplus widened from €18.7bn to €20bn in March.

Month-on-month, exports rose by 1.5%, while imports rose by just 0.4%. Year-on-year, exports increased by 1.9%, while imports rose by 4.5%.

While the March trade data was on the positive side, sentiment towards the 2nd day of U.S – China trade talks pinned back any material upside.

A tariff hike from 10% to 25% on $200bn worth of Chinese goods also went into effect on Friday.

The Market Movers

On the DAX, ThyssenKrupp led the way, surging by 24.1% on Friday. The rally came off the back of news that the company was looking into a partial listing of its elevator business.

While the majority of the European sectors found support through the day, the auto sector continued to struggle. The role out of tariffs pinned back the auto sector due to its sizeable exposure to China.

Daimler led the way down, sliding by 3.56%, with BMW (-0.6%) and Volkswagen (-0.22%) also seeing red on the DAX. Continental managed to buck the trend on the day, rising by 0.18%. On the CAC, Renault slid by 0.85%

Things were somewhat better for bank stocks. Deutsche Bank and Commerzbank rallied by 1.33% and 1.22% respectively. On the CAC40, BNP Paribas rose by 0.15%, while UniCredit S.p.A notched up a 0.74% gain. The gains were modest relative to the heavy losses from Thursday

Commerzbank ended the week down by 6.31%, with Deutsche Bank down by 4.5%.

The Day Ahead

For the day ahead, it’s a particularly quiet day on the economic calendar. There are no material stats scheduled for release later this morning to provide the European majors with direction.

The lack of progress over the U.S – China trade talks last week may begin to weigh on risk sentiment. Friday’s tariff hike from 10% to 25% is expected to have a far more significant impact on the global economy than the 10% tariffs.

Failure by both sides to find common ground, in spite of the tariff hike, suggests that there is some distance to be covered before both sides can reach an agreement.

Over the weekend, to rub salt in the wound, Trump threatened China with the prospects of a more punitive deal in his 2nd term. Assuming that Trump is successful in his campaign next year, it could scupper Beijing’s plans of holding out for a return of the Democrats.

With work already underway to roll out 25% tariffs on another $300bn worth of Chinese goods, things could get from bad to worse.

At the time of writing, the DAX30 was up by 11.5 points. Things were not so rosy for the U.S futures, however. The Dow Mini was down 234 points, with the NASDAQ and S&P500 also pointing to a bearish open. Trump may try to avoid a panic sell-off later in the day by delivering one of his more optimistic views on progress.

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