European Equities: Trade War Jitters Expected to Pin Back the Majors

The Majors

The European majors hit red on Friday to end the month with heavy losses.

Leading the way down on Friday was the DAX, which tumbled by 1.47%. The day’s loss left the DAX down 2.37% for the week and down by 5% for the month of May.

Things were not much better for the CAC40. A 0.79% loss on Friday left the CAC down by 2.05% for the week and by 6.78% for the month.

The EuroStoxx600 ended the week down by 1.85%, following a 0.81% loss on Friday.

Market sentiment towards the extended U.S – China trade war and reaction to Trump’s latest tariff threat to Mexico weighed.

The U.S Treasury yield curve inverted once more in the week ringing the alarm bells, with sentiment towards FED monetary policy turning dovish.

The Stats

Economic data was on the lighter side on Friday. German retail sales and prelim German and Italian inflation figures provided direction on the day.

While softer inflation numbers were positive for the majors, a slide in German retail sales was negative for the DAX.

According to Destatis, retail sales fell by 2% month-on-month in April, following on from a 0.2% fall in March. Forecasts were for a 0.4% increase.

The Market Movers

On the DAX, Wirecard hit reverse, sliding by 9.53% on the day, with ThyssenKrupp falling by 3.86% as trade war jitters hit the majors.

The auto sector also saw deep red, with Volkswagen (-3.11%), Daimler (-2.12%), Continental (-1.91%), and BMW (-1.84%) amongst the worst performers on the day.

There was no respite for the banking sector. Deutsche Bank and Commerzbank ended the day down by 1.93% and by 1.91% respectively.

From the CAC, BNP Paribas slid by 1.15%, with Credit Agricole falling by 0.87%. Renault also saw red, sliding by 4.55%.

The Day Ahead

Economic data is on the heavier side in the day ahead. Manufacturing PMI numbers out of Spain and Italy are due out alongside finalized PMI numbers for France, Germany. and the Eurozone.

In spite of better than expected China PMI numbers earlier in the day, today’s numbers are going to need to impress to provide support.

The Asian equity markets struggled through the early part of the day, as trade war jitters continued to weigh. Trump’s latest threat raises the stakes and suggests that the EU could be next on the trade warpath…

Sliding U.S Treasury yields and a stronger EUR will also add pressure on the majors through the day.

For the bulls, a jump in U.S manufacturing activity would ease some of the market anxiety, though it may not be enough to reverse any losses in the early part of the day.

At the time of writing, the DAX30 was down by 87 points, with the Dow Mini down by 130 points.