European Equities: U.S Stats and Stimulus Talks on Capitol Hill in Focus

In spite of a reintroduction of lockdown measures, manufacturing sector PMI numbers impressed in particular, easing market concerns over the economic outlook.

From the U.S, progress towards a stimulus package was also market positive mid-week. Disappointing retail sales and service sector PMI figures from the U.S limited gains later in the day, however.

The Stats

It was a busy day on the economic calendar. Prelim December private sector PMI figures for France, Germany, and the Eurozone were in focus. Eurozone trade and wage growth figures for November and the 3rd quarter were also out on the day.

France’s manufacturing PMI rose from 49.6 to a 2-month high 51.1, with the Services PMI jumping from 38.8 to a 4-month high 49.2. Economists had forecasted PMIs of 50.1 and 40.0 respectively.

From Germany, the Manufacturing PMI rose from 57.8 to a 34-month high of 58.6, with the Services PMI rising from 46.0 to a 2-month high of 47.7. Economists had forecasted PMIs of 56.4 and 44.0 respectively.

For the Eurozone, the Manufacturing PMI rose from 53.8 to a 31-month high of 55.5, with the Services PMI rising from 41.7 to a 3-month high of 47.3. Economists had forecasted PMIs of 53.0 and 41.9 respectively.

The Eurozone’s composite PMI rose from 45.3 to 49.8, versus a forecasted 45.8.

According to the Eurozone’s prelim December Markit Survey, key takeaways included:

• Inflows of new orders rose marginally and for the 1^st time since September. A jump in new orders across the manufacturing sector and a slowdown in the rate of loss of new business in the services sector delivered.
• New export orders across the manufacturing sector rose at the 2^nd fastest rate in 34-months.
• By contrast, service sector export orders fell sharply once more.
• As a result of the pickup in new business, the rate of depletion of backlogs of work was the smallest since February.
• Companies reportedly reined in job cutting, with employment falling at the slowest pace since the start of the pandemic.
• Supported by positive vaccine news, sentiment about future prospects rose to the highest level since Apr-18.

Trade Data

For the Eurozone, the trade surplus widened from a revised €24.5bn to €30.0bn in October. Economists had forecast a narrowing to €22.0bn

According to Eurostat,

• Exports of goods to the rest of the world fell by 9.0% to €199.3bn compared with October 2019.
• Imports of goods from the rest of the world slid by 11.7% to €169.3bn compared with October 2019.
• In October 2019, the trade surplus with the rest of the world had stood at €27.2bn.
• Intra-euro area trade fell by 6.8% to €166.1bn compared with October 2019.

Wage growth figures for the 3^rd quarter were the only disappointment of the day. In the 3^rd quarter, Eurozone wages grew by 2.2%, easing back from a 4.5% increase in the 2^nd quarter. While the cost of wages and salaries were on the rise, the non-wage component fell by 0.4%. In the 2^nd quarter, the non-wage component had risen by 0.7%.

From the U.S

It was also a busier day on the economic calendar. Key stats included November retail sales and December prelim private sector PMI numbers.

Retail sales in November disappointed. Core retail sales fell by 0.9%, following a 0.1% decline in October, with retail sales sliding by 1.1%. In October retail sales had also fallen by 0.1%.

Following better than expected PMI numbers from the Eurozone, there was plenty of interest in the U.S numbers.

In December, the Services PMI fell from 58.4 to 55.3, with the Manufacturing PMI falling from 56.7 to 56.5.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Wednesday. Volkswagen rallied by 3.47%, following Tuesday’s 7.43% surge to lead the way, with Continental gaining 2.59%. BMW and Daimler saw more modest gains of 0.71% and 1.12%.

It was a relatively bullish day for the banks. Deutsche Bank rose by 0.37%, with Commerzbank eking out a 0.04% gain.

From the CAC, it was a bearish day for the banks. BNP Paribas and Credit Agricole fell by 2.43% and by 1.83%, with Soc Gen seeing a 0.36% loss on the day.

It was a mixed day for the French auto sector. Peugeot rose by 1.58%, while Renault slipped by 0.33%.

Air France-KLM fell by 0.36%, with Airbus SE declining by 0.72%.

On the VIX Index

It was a 2^nd consecutive day in the red for the VIX on Wednesday. Following on from a 7.40% fall on Tuesday, the VIX fell by 1.70% to end the day at 22.50.

Disappointing economic data pinned the U.S majors back on the day, while there was a muted response to the FED policy decision and projections.

On the monetary policy front, the FED left policy unchanged, while upwardly revising growth projections.

The FED stated that it would maintain purchasing at least $120bn worth of bonds monthly until progress is made towards maximum employment and inflation targets.

In terms of economic growth, the FED revised up growth for 2020 from a 3.7% contraction to a 2.4% contraction. For 2021, growth was revised up from 4% to 4.2%.

Extended monetary policy support, expectations of a stimulus package, and the upward revisions to growth projections weighed on the VIX.

The Dow fell by 0.15%, while the NASDAQ and S&P500 saw modest gains of 0.50% and 0.18% respectively.

The Day Ahead

It’s a quieter day ahead on the economic calendar. Finalized November inflation figures for the Eurozone are due out.

Barring any marked revisions from prelim figures, however, the numbers should have a muted impact on the majors.

From the U.S, the weekly jobless claims and December’s Philly FED Manufacturing Index figures will influence, however.

Away from the economic calendar, Brexit, COVID-19 news, and chatter from Capitol Hill will also need monitoring. On Wednesday, lawmakers neared a stimulus deal that would further support riskier assets.

The Futures

In the futures markets, at the time of writing, the DAX was up by 9.5 points, with the Dow Mini up by 18 points.

For a look at all of today’s economic events, check out our economic calendar.