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European Equities: Trade War Rhetoric to Weigh Early on

The European majors look set to take a hit at the open as the U.S – China trade war rhetoric flares up. Economic data hasn’t helped…
Bob Mason
Weltweiter Handel

Economic Calendar:

Wednesday, 29th May

  • French Consumer Spending m/m (Apr)
  • French GDP q/q (Q1)
  • CPI m/m (May) Prelim (French)
  • HICP m/m (May) Prelim (French)
  • German Unemployment Change (May)
  • German Unemployment Rate (May)

Thursday, 30th May

  • Spanish HICP (YoY) (May)

Friday, 31st May

  • German Retail Sales m/m (Apr)
  • Italian CPI m/m (May)
  • German CPI m/m (May)

The Majors

The European majors failed to make it 3-in-a-row on Tuesday.

Leading the way down was the CAC40, which fell by 0.44% on the day to leave the index down by 0.07% for the current week.

The DAX30 and EuroStoxx600 weren’t far behind, with losses of 0.37% and 0.22% respectively. While on the decline on Tuesday, the DAX held onto positive territory for the current week.

The Stats

Economic data released through the European session was on the heavier side on Tuesday.

Consumer Confidence

Germany’s June GfK consumer climate figures provided direction going into the European open.

According to the latest GfK study, the GfK is predicting a consumer climate value of 10.1 points for June, down from a revised 10.2 points in May. The GfK consumer climate value was revised down from 10.4 to 10.2 for May.

The study showed that, while income expectations improved, economic outlook and propensity to buy fell.

Business Confidence

Later in the session, the Eurozone’s May business figures also provided direction.

According to figures released by the EU Commission, the Business Climate Indicator (BCI) for the euro area fell from +0.42 to +0.30 in May.

The 0.12 point fall was attributed to a marked decline in manager view on past production, export order books and, to a lesser degree, their assessment of overall order books. Improved sentiment towards production expectations and appraisals of stocks of finished goods provided support.

In May 2018, the BCI stood at 1.44.

Geopolitics

Outside of the numbers, market sentiment towards the U.S – China trade war deteriorated on the day. The reversal came in a delayed response to Trump’s comments from Japan. Trump had said that the U.S was not yet ready for a trade deal with China.

China’s willingness to fight back in the extended trade war has added to the market angst.

Weaker than forecasted economic data out of the Eurozone on the day reignited concerns over the economic outlook. The shift in sentiment came as business and consumer confidence weakened further.

Negative sentiment towards the global economic outlook led to a sharp increase in demand for government bonds on the day.

Adding to the negative mood, Italy looks as though it’s about to enter into another battle with the EU over government spending.

Italian government bond yields saw a marked increase as a result of investors jumping into German government bonds and U.S Treasuries on the day, adding to the downward pressure on the major indexes.

The Market Movers

On the DAX, it was a mixed bag. While Continental rose by 0.95%, Volkswagen (-0.14%), BMW (-0.06%) and Daimler (-0.63%) saw red on the day.

From the banking sector, Deutsche Bank and Commerzbank struggled on the day, sliding by 2.97% and by 2.11% respectively.

In spite of the disappointing stats and market jitters, BNP Paribas eked out a 0.19% gain. Alongside its European peers, Credit Agricole fell by 0.39%, with Italy’s UniCredit S.p.A falling 1.44%.

The Day Ahead

Economic data due out of the Eurozone is on the heavier side again in the day ahead.

French consumer spending, prelim inflation, and 2nd estimate GDP numbers for the 1st quarter are due out ahead of Germany’s May unemployment figures.

German unemployment numbers on the day will likely be the key driver, barring any particular dire numbers out of France.

With no material stats due out of the U.S to influence market risk sentiment, any trade war chatter will influence.

Market sentiment towards the economic outlook turned for the worse on Tuesday. With the Asian equity markets seeing red and demand for government bonds on the rise, the European majors will likely be under pressure from the open.

At the time of writing, the DAX30 was down by 82 points, with the Dow Mini down by 67 points.

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