European Equities: Trade, Economic Data and Draghi in the SpotlightIt’s a busy day ahead. While any chatter on trade will move the majors, Draghi and economic data out of Germany are also there to consider.
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) / ECB Press Conference
Friday, 7th June
- German Industrial Production m/m) (Apr)
- German Trade Balance (Apr)
The European majors made it 3-in-a-row on Tuesday. Leading the way on the day was the CAC40, which rose by 0.45%. While the EuroStoxx600 was close behind, rising by 0.38%, the DAX30 gained just 0.08%.
Support through the day came off the back of FED Chair Powell’s willingness to consider a rate cut to support the U.S economic expansion.
Later in the day, White House Trade Advisor Navarro spoke, saying that Mexico tariffs may not be needed. The comments come after Beijing’s willingness to return to the negotiating table, easing trade jitters at the start of the month.
U.S President Trump also reportedly followed on by saying that Mexico wants to make a deal. Trump’s about-turn comes as members of the Republican Party call for the U.S President to present the case for Mexican tariffs to Congress.
For the global equity markets, hopes of an end to the U.S – China trade war and for tariffs on Mexico to be averted coupled with expectations of a FED rate cut have been the positives this week.
While hopes of progress on trade and a FED rate cut provided support, news of the European Commission talking of penalizing Italy over rising public debt tested investor sentiment.
Economic data was on the heavier side on Wednesday.
Key stats on the day included Spanish and Italian service sector PMI numbers and the Eurozone’s April retail sales figures.
French, German and the Eurozone’s finalized service sector PMI and Composite PMIs also provided direction on the day.
While the French finalized service PMI slipped from a prelim 51.7 to 51.5, the German PMI came in at 55.4, up from a prelim 55.0.
For Italy, service sector activity stagnated, the 50.0 PMI coming in ahead of a forecasted 49.8. The Spanish PMI eased from 53.1 to 52.8, which was better than a forecasted 52.5.
Following some better than expected member state numbers, the finalized Eurozone service sector PMI came in at 52.9, up from a prelim 52.5. The composite also was revised upwards, from 51.6 to 51.8.
While the PMI figures provided some respite, retail sales slipped by 0.4% in the Eurozone in April.
From the U.S the stats sent mixed signals. While the markets preferred ISM non-manufacturing PMI reported an uptick in activity, the ADP nonfarm employment change number disappointed. According to the latest ADP report, just 27k were added to payrolls in May, which fell well short of a forecasted 185k.
The Market Movers
It was a choppy day for the DAX, which hit reverse late on before closing out in the green. On the DAX, Wirecard led the way, rising by 1.92%, while the auto and banking sectors dragged on the day.
From the auto sector, Continental led the way down, falling by 1.66%, with Volkswagen (-1.22%), Daimler (-1.13%) and BMW (-0.77%) not far behind.
The news from the EU Commission weighed on bank stocks, with Deutsche Bank (-1.65%) and Commerzbank (-2.16%) giving up some of Tuesday’s gains.
From the CAC, BNP Paribas slipped by 0.63%, with Credit Agricole falling by 1%. Renault joined its DAX peers in the red, falling by 0.65%.
The Day Ahead
It’s another busy day on the economic calendar.
On the data front, German factory orders and the Eurozone’s 3rd estimate, 1st quarter GDP numbers are due out.
Germany’s factory orders will provide direction going into the European session.
Later in the day, the market focus will shift to the ECB. While the ECB is not expected to make a move, the press conference will likely influence.
Central banks have turned dovish and Draghi will likely want to catch up, with the DAX the main beneficiary from a weaker EUR.
While market sentiment towards trade has improved, sensitivity to any trade war chatter will remain on the day.
At the time of writing, the DAX30 was down by 2.5 points, with the Dow Mini down by 17 points.