European Equities: Trade Tension and two HK Bills Could Sink the Majors

Direction on the day hinges on two bills awaiting Trump’s signature. The signing of both would test risk appetite and sink hopes of a trade agreement.
Bob Mason
USA/Chinese Flag - Old Exective Office Building, Washington, D.C.

Economic Calendar:

Thursday, 21st November 2019

  • ECB Monetary Policy Meeting Minutes

Friday, 22nd November 2019

  • German GDP (YoY) (Q3) 2nd Estimate
  • German GDP (QoQ) (Q3) 2nd Estimate
  • French Manufacturing PMI (Nov) Prelim
  • French Services PMI (Nov) Prelim
  • German Manufacturing PMI (Nov) Prelim
  • German Services PMI (Nov) Prelim
  • Eurozone Manufacturing PMI (Nov) Prelim
  • Eurozone Markit Composite PMI (Nov) Prelim
  • Eurozone Services PMI (Nov) Prelim

The Majors

European equities hit reverse on Wednesday, with the DAX30 falling by 0.48% to lead the way down. The CAC40 and EuroStoxx600 weren’t far behind, with losses of 0.25% and 0.41% respectively.

With economic data limited to wholesale inflation figures out of Germany, rising tensions between the U.S and China weighed on risk appetite.

News of the U.S Senate voting unanimously to support Hong Kong protesters led to China threatening retaliation.

The U.S President added to the tension by raising the threat of more tariffs should China fail to reach a phase 1 agreement with the U.S.

On the day, China held back from responding to Trump’s latest tariff threat.

For Beijing, the latest U.S Senate vote makes things particularly tricky. Reports of Chinese firms being particularly sensitive to pro-HK sentiment will pressure Beijing to respond. A phase 1 agreement that leaves tariffs in place is unlikely to be the response businesses will be looking for…

The Stats

It was another quiet day on the Eurozone economic calendar on Wednesday. Economic data was limited to October wholesale inflation figures out of Germany.

According to Destatis,

  • The Producer Price Index fell by 0.2% in October, reversing a 0.1% rise in September. Economists had forecast a 0.1% decline.
  • Year-on-year, the Producer Price Index fell by 0.6%.
  • Energy prices fell by 3.1%, year-on-year, to leave the Index in the red in October. Month-on-month, energy prices fell by 0.1%.
  • Excluding energy, the Index rose by 0.3%, year-on-year, while down by 0.2% month-on-month.
  • Prices of intermediate goods fell by 1.7%, year-on-year, which was the largest annual decline since July 2016. Month-on-month, prices of intermediate goods fell by 0.7%.
  • Prices for durable consumer goods rose by 1.4%, with prices for capital goods up by 1.5%.
  • Also on the rise were prices of non-durable consumer goods, which rose by 2.3%.

From the U.S, there were no material stats from the U.S to provide direction late in the day.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Wednesday, as the markets responded to rising tensions between the U.S and China. Continental led the way, sliding by 1.80%. Daimler and Volkswagen fell by 0.28% and by 0.87% respectively. BMW ended the day with a more modest 0.11% loss.

It was also bearish for the banks. Deutsche Bank fell by 0.49%, with Commerzbank down by 0.97%.

From the CAC, it was a mixed session for the banks. BNP Paribas and Credit Agricole rose by 0.69% and by 0.24% respectively, while Soc Gen fell by 0.21%.

It was bearish for French Autos, however. Peugeot fell by 0.88%, with Renault falling by 0.41% on the day.

On the VIX Index

It was back into the red on Wednesday, after 2nd consecutive day in the green. The VIX fell by 0.62%, partially reversing a 3.21% gain from Tuesday, to end the day at 12.8.

The pullback came in spite of negative sentiment towards trade leaving the U.S equity markets in the red on the day.

On the day, the VIX had hit a current month high 14.2 before sliding back.

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. Economic data is limited to prelim consumer confidence figures due out of the Eurozone.

We have seen market sensitivity to the numbers build, with the Eurozone economy dependent on consumer spending. Expect today’s numbers to provide direction late in the session.

A lack of stats in the earlier part of the day leaves the majors in the hands of geopolitics going into the open.

In the early afternoon, the ECB monetary policy meeting minutes will also provide direction, along with economic data out of the U.S.

On the U.S data front, we would expect the Philly FED Manufacturing Index figures for November to have the greatest influence. The numbers are due out at the same time as the ECB minutes.

Geopolitics may ultimately overshadow the economic calendar on the day, however. News of the House of Representatives passing two bills to support HK protestors on Wednesday will test the majors early on. It now sits with the U.S President to decide. With trade tensions rising this week, expect a strong response from China and the global financial markets should Trump sign.

In the futures market, at the time of writing, the Dow was down by 58 points.

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