European Equities: Trump Delivers a Blow Ahead of the Open

It’s risk off and only Trump and Twitter can prevent what looks set up to be quite a painful day for the bulls…
Bob Mason
Light Board

Economic Calendar:

Monday, 6th May

  • Spanish Unemployment Change
  • Spanish Services PMI (Apr)
  • Italian Services PMI (Apr)
  • French Services PMI (Apr) Final
  • German Services PMI (Apr) Final
  • Eurozone Markit Composite PMI (Apr) Final
  • Eurozone Services PMI (Apr) Final
  • Eurozone Retail Sales m/m (Mar)

Tuesday, 7th May

  • German Factory Orders m/m (Mar)

Wednesday, 8th May

  • German Industrial Production m/m (Mar)

Thursday, 9th May

  • N/A

Friday, 10th May

  • German Trade Balance (Mar)
  • French Non-Farm Payrolls (q/q (Q1)

The Majors

It was another mixed week for the European majors in the week ending 3rd May.

Bucking the trend through the week was the DAX30, which gained 0.79%, the majority of which came from a 0.55% rally on Friday.

In contrast, the CAC40 slipped by 0.37%, with the EuroStoxx600 ending the week down 0.16%.

Economic data released through the European session was on the lighter side on Friday. Key stats were limited to prelim Eurozone inflation figures for April, which had a muted impact on the majors.

While inflationary pressure picked up in April, the annual core rate of inflation of 1.2% continued to sit well below the ECB’s target, pinning back any possible shift in the monetary policy outlook.

In spite of the futures pointing to a negative open in the early part of the day, the DAX30 managed to avoid a late slide into negative territory, supporting a closeout at 12,400 levels for the first time since late September of last year.

On the DAX30, leading the way on Friday was Adidas, which surged by 9.13%. Release of 1st quarter earnings on Friday impressed, with net income surging by 17%.

Whilst the DAX30 found the support of Adidas, the CAC40 failed to gain support from Societe General’s corporate earnings release. SocGen reported a net income fall of 26% for the 1st quarter. In spite of the poor results, the bank reported that restructuring plans were on track, supporting a 1.13% gain on the day.

While the CAC40 and EuroStoxx600 ended the week in the red, support at the end of the week also came from economic data out of the U.S.

It was the perfect cocktail for riskier assets. Nonfarm payrolls surged by a whopping 263k, while wage growth came in at 3.2%, falling short of a forecasted 3.3%.

Strong labor market conditions and tepid wage growth are expected to keep inflationary pressures and the FED in check near-term.

The weekly gain in the DAX30 came in spite of the EUR rising by 0.42% in the week.

The Day Ahead

For the day ahead, it’s a relatively busy day on the economic data front. Key stats due out of the Eurozone include Spanish unemployment and April service sector PMI numbers out of Spain and Italy.  Finalized service sector PMI numbers are also due out of France, Germany, and the Eurozone.

Alongside the PMI numbers, the Eurozone’s retail sales figures are also due out.

While we can expect the service sector PMI and the Eurozone’s finalized composite PMI to have an impact, retail sales will also be key, from a data perspective.

Consumer confidence has been on the back foot of late. Any larger than expected slide in consumption will bring into question economic growth prospects in the 2nd quarter.

Outside of the numbers, sentiment towards a resumption of the U.S – China trade negotiations will also influence.

Over the weekend, U.S President Trump had stated that an agreement was close. There was a material shift going into Monday, however. News hit the wires overnight of Trump threatening to hike tariffs on $200bn worth of China goods from 10% to 25%. Trump also tweeted of the prospect of tariffs on an additional $325bn worth of goods. Talks are scheduled to kick off on Wednesday, which is now at the risk of being canceled by China.

The latest threats will see the markets distracted from economic data throughout the day. We can expect the majors to be under significant pressure, barring an about-turn by the U.S President.

At the time of writing, the futures were pointing to a slide at the open. The DAX30 was down by a whopping 164 points, with the Dow pointing to a 506 point drop at the open.

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