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European Equities: Trade War Angst to Hit the Majors

The majors are set for another tumble as an escalation in the U.S – China trade war haunts the bulls. Stats out of Germany are unlikely to help…
Bob Mason
List of stock market indices

Economic Calendar:

Monday, 26th August

  • German Ifo Business Climate Index (Aug)

Tuesday, 27th August

  • German GDP (YoY) (Q2) 2nd Estimate
  • German GDP (QoQ) (Q2) 2nd Estimate

Wednesday, 28th August

  • GfK German Consumer Climate (Sep)

Thursday, 29th August

  • French Consumer Spending (MoM) (Jul)
  • French GDP (QoQ) (Q2)
  • Spanish HICP (YoY) (Aug) Prelim
  • German Unemployment Change and Unemployment Rate (Aug)
  • German CPI (MoM) (Aug) Prelim

Friday, 30th August

  • German Retail Sales (MoM) (Jul)
  • Italian CPI (MoM) (Aug) Prelim
  • Eurozone CPI (YoY) (Aug) Prelim
  • Eurozone Unemployment Rate (Jul)
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The Majors

The European majors saw red for a 2nd consecutive day on Friday. Leading the way down was the DAX, which slid by 1.15%, with the CAC40 close behind, falling by 1.14%. The EuroStoxx600 saw a more modest 0.78% loss on the day.

Friday’s sell-off left the majors with minor gains for the week. The CAC40 and EuroStoxx600 rose by 0.49% and by 0.47% respectively, with the DAX30 ending the week up 0.42%.

It’s been a bearish month, however. The DAX was down by 4.74% for the current month, with the CAC40 and EuroStoxx600 down by 3.48% and 3.74% respectively.

The Friday sell-off came off the back of an escalation in the U.S – China trade war.

While the markets were preparing to receive FED Chair Powell’s scheduled speech from Jackson Hole, China announced fresh tariffs on U.S goods. $75bn worth of U.S goods, including autos and crude, will come into effect on 1st September and 15th December. The tariffs will range from 5% to 10%. China announced a 25% tariff on U.S cars and 5% on auto parts.

China’s announcement muted any possible impact of Powell’s speech on the financial markets but failed to mute the U.S President. China’s announcement and Powell’s unwillingness to slash interest rates resulted in a Twitter tantrum. Trump not only lambasted Powell but also ordered the U.S to stop doing business with China.

Trump’s remarks that included the promise of retaliation to China’s latest move ultimately sunk the majors. Powell’s speech had been considered positive for the majors.

The Stats

It was a particularly quiet day on the Eurozone economic calendar on Friday. There were no material stats out of the Eurozone to provide direction on the day.

A lack of stats had left the market focus on the Jackson Hole Symposium that ultimately ended up being a non-event.

The Market Movers

From the DAX, BMW and Daimler were the worst performers on the day, sliding by 4.08% and 3.83% respectively. Continental and Volkswagen saw more modest losses of 2.7% and 2.41% respectively as the markets reacted to China’s retaliation to fresh U.S tariffs.

The tech sector also slumped, with Infineon Tech sliding by 3.81%. Market jitters over the global economy and an escalation in the extended trade war were also a bad combo for the banking sector. Deutsche Bank fell by 2.99%, with Commerzbank ending the day with a 2.31% loss.

From the CAC, Credit Agricole and Soc Gen fell by 1.66% and 1.09% respectively, while BNP Paribas slid by 2.14%. Things were not much better in the auto sector, with Renault and Peugeot falling by 1.35% and 1.77% respectively.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. German business sentiment figures for August, due out later this morning, will influence.

While the stats will provide direction, we can expect further chatter on the U.S – China trade war that would have a greater impact than the stats.

Updates from the G7 Summit in France will also need to be factored in as world leaders react to the latest escalation in the U.S – China trade war.

In the futures markets, at the time of writing, the DAX was down by 131 points, while the Dow Mini was down 231 points.

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