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European Equities: Updates ahead of Trade Talks to Take Center Stage

By:
Bob Mason
Published: May 7, 2019, 05:11 UTC

Updates on trade talks will be key and the markets will need to be convinced that progress is possible.

Weltweiter Handel

Economic Calendar:

Tuesday, 7th May

  • German Factory Orders m/m (Mar)

Wednesday, 8th May

  • German Industrial Production m/m (Mar)

Friday, 10th May

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

The Majors

The markets took a dive on Monday, with the CAC40 and DAX30 sliding by 1.18% and by 1.01% respectively. The EuroStoxx600 saw a more modest 0.88% fall on a day where economic data came second best to Trump’s Twitter account.

Driving a frenzied sell-off through the Asian session, which cascaded through to the European markets, was a material shift in Trump’s handling of trade negotiations with China.

News hit the wires overnight on Sunday 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 had been scheduled to kick off on Wednesday.

Unsurprisingly, resource and auto stocks were among the worst hit, due to their exposure to China, along with bank stocks, which would see earnings impacted in a deteriorating economic environment.

On the DAX, BASF tumbled by 4.8% to lead the way down. From the auto sector, BMW and Daimler ended the day with 2.21% and 1.74% losses respectively. It could have been a lot worse, however, with BMW falling by as much as 3.7% earlier in the session. Volkswagen saw a more moderate 1.36% loss on the day.

Across the bank stocks, UniCredit S.p.A slid by 3.27%, with Commerzbank and Deutsche Bank ending the day down by 1.96% and 1.59% respectively. On the CAC40, BNP Paribas slipped by 0.77%.

For the European majors, the U.S majors provided much-needed support late on, with the U.S equity markets reversing losses through the session. The DAX30 futures had fallen by close to 200 points ahead of the open…

The Stats

The data was of little support through the day, in spite of better than forecasted numbers.

The Finalized April Eurozone Composite PMI came in at 51.50, which was better than a prelim 51.3. Whilst down marginally from a March 51.6, service sector activity continued to deliver, offsetting weak manufacturing sector numbers.

Support came from better than expected service sector activity in Italy, France, and Germany. In spite of weaker service sector activity in Spain, by composite, Spain ranked 2nd at a 7-month low 52.9. Germany’s composite reached a 2-month high 52.2 to take it to 3rd with France ranked 4th with a 2-month high 50.1.

In contrast, Italy’s composite PMI fell to a 3-month low 49.5 to leave it at the foot of the table.

Better than expected numbers were not good enough to fuel a rebound in the European majors, whilst providing some support to the EUR.

Eurozone retail sales figures were also better than expected in March, stagnating rather than falling by 0.1%.

Again, while ahead of forecast, the stagnation delivered more bad news. Year-on-year, sales rose by 1.9%, which came up well short of a 3% rise in February.

The Day Ahead

It’s a quiet day ahead on the economic data front. Key stats due out later this morning are limited to Germany’s March factory orders.

Forecasts are positive for the DAX and risk appetite in general. German factory orders have fallen for 4-consecutive months. Disappointing numbers will likely weigh early on.

If the manufacturing PMI numbers are anything to go by, there’s unlikely to be too much support from the stats. Outside of the numbers, EU economic forecasts are due out. Following the doom and gloom back in February and the IMF’s downward revisions, there could be a ray of hope, though any stability may need to be discounted should the news suggest that the U.S – China trade talks will not go ahead.

Key through the day will be any chatter on trade. Corporate earnings may also need to take a backseat to Twitter accounts and any chatter from Beijing. Early updates are of trade talks going ahead as scheduled.

At the time of writing, the futures were pointing to a fall at the open. The DAX30 was down by 30 points, with the CAC40 down by 64 points.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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