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European Equities: Will Brexit Give the Bears the Upper Hand?

By:
Bob Mason
Updated: Apr 2, 2019, 11:35 UTC

While Brexit will remain the focal point, U.S durable goods orders will also play a role later in the day.

Light Board

Economic Calendar:

Tuesday, 2nd April 2019

  • Spanish Unemployment Change
  • Eurozone Unemployment Rate (Feb)

Wednesday, 3rd April 2019

  • Spanish Services PMI (Mar)
  • Italian Services PMI (Mar)
  • French Services PMI (Mar) Final
  • German Services PMI (Mar) Final
  • Eurozone Markit Composite PMI (Mar) Final
  • Eurozone Services PMI (Mar) Final
  • Eurozone Retail Sales (MoM) (Feb)

Thursday, 4th April 2019

  • German Factory Orders (MoM) (Feb)
  • ECB Monetary Policy Meeting Minutes

Friday, 5th April 2019

  • German Industrial Production (MoM) (Feb)

The Majors

A bullish end to the 1st quarter spilled into the 2nd quarter on Monday. The DAX led the way, rallying by 1.35% on Monday. The CAC40 rose by 1.03%, while the EuroStoxx600 ended the day with a 1.21% gain.

Economic data out of China from Sunday and the Asian session on Monday drove demand for riskier assets. Expansion in China’s manufacturing sector offset the effects of negatively skewed stats out of the Eurozone.

Out of both France and Germany, finalized March manufacturing PMIs were revised downwards, while Italy’s manufacturing sector contracted at a quicker pace.

The only positive was, in fact, a return to expansion in Spain’s manufacturing sector, which had a muted impact on the EUR or risk sentiment.

A stronger EUR failed to pin back the majors, the upside coming off the back of improved market risk appetite rather than a shift in sentiment towards monetary policy.

The Day Ahead

It’s a relatively quiet day ahead on the economic calendar. Key stats due out of the Eurozone include unemployment figures out of Spain and the Eurozone.

While Asian equities avoided a pullback from Monday’s gains, Brexit drama overnight will be a test for risk appetite through the day.

Following the overnight vote, UK parliament failed to deliver an orderly departure from the EU, leaving the prospects of a prolonged extension or even a snap General Election or 2nd Referendum.

While the impact was muted in the Asian equity markets, the Aussie Dollar and Kiwi Dollar hit reverse, with the U.S futures pointing to a fall at the open.

Eyeing the European futures, the DAX was up by just 6 points at the time of writing. Direction through the day will likely be hinged on government bond yields.

Theresa May’s cabinet will likely decide the fate of the markets on the day. Sentiment towards the U.S – China trade talks and a pickup in manufacturing activity in China may be positives, but with Britain being the 5th largest economy.

Things could get choppy later in the day, as it’s all about progress and an action plan. An unwillingness by the Conservative Part to request a lengthier extension to Article 50 could play into the hands of the bears…

While Brexit will remain the focal point, U.S durable goods orders will also play a role later in the day. Any weak numbers and we can expect demand for U.S Treasuries to rise, supported by ongoing Brexit uncertainty.

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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