European Equities: Private Sector PMIs in Focus as Geopolitics Takes a Break

The Majors

It was a bullish end to the week for the European majors, with a 3^rd consecutive day in the green contributing to a reversal of losses from the start of the week.

The EuroStoxx600 led the way on Friday, rallying by 1.15%, while the CAC40 and DAX30 saw more modest gains of 0.59% and 0.46% respectively.

Economic data and sentiment towards monetary policy took a backseat, in spite of ECB President Lagarde’s first ECB press conference on Thursday.

News of a phase 1 trade agreement drove demand for riskier assets on Friday, with Boris Johnson’s comfortable victory in the UK General Election also market risk positive.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Friday. Key stats were limited to finalized November inflation numbers out of Spain that had a muted impact on the majors.

From the U.S

Weaker than forecast retail sales figures were also brushed aside by a market relieved that China and the U.S managed to find a way forward.

Retail sales rose by 0.2%, month-on-month, following a 0.4% increase in October. Economists had forecast a rise of 0.5%. Core retail sales rose by just 0.1%, coming up short of a forecast of 0.4%. In October core retail sales had risen by 0.3%.

Import and export prices and business inventory figures garnered little to no attention.

The Market Movers

For the DAX: It was a bullish day for the auto sector. Volkswagen rallied by 2.23% to lead the way. BMW and Daimler weren’t far behind with gains of 1.35% and 1.32% respectively. Continental trailed, however, rising by a more modest 0.15%  on the day.

It was a mixed day for the banks, with Commerzbank rising by 0.53%, while Deutsche Bank slid by 1.18% to buck the trend on the day. The slide came in spite of Deutsche Bank announcing that it’s looking to cut its bonus pool by as much as 20%.

From the CAC, it was a bullish day for the banks. Credit Agricole led the way, rising by 1.01%. BNP Paribas and Soc Gen saw more modest gains of 0.77% and by 0.63% respectively.

News of the phase 1 trade agreement also supported the French Auto sector. Peugeot rallied by 2.24%, while Renault saw a more modest 0.40% gain on the day.

On the VIX Index

The VIX saw red for a 4^th consecutive day, falling by 9.4% on Friday. Following on from a 6.2% decline on Thursday, the VIX ended the day at 12.6.

A phase 1 trade agreement between the U.S and China and Boris Johnson’s victory in the UK General Election left the VIX on the ropes.

Economic data was largely brushed aside on the day, in spite of U.S retail sales figures coming in softer than forecasts.

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. December’s prelim private sector PMI numbers are due out of France, Germany, and the Eurozone.

We will continue to expect Germany’s manufacturing PMI and the Eurozone’s Composite to be the main area of focus.

We may see, however, that the markets may be more insensitive to the numbers should they be skewed to the negative. A phase 1 trade agreement eases some pressure on the global trade environment. We don’t expect the markets to ignore the numbers, however.

Wage growth figures for the Eurozone will also influence, with consumer spending continuing to be key for the Eurozone economy.

From the U.S, prelim private sector PMIs later in the day will also provide direction.

Earlier in the day, economic data out of China was on the positive side. Industrial production rose by 6.2%, coming in well ahead of a forecast of 5.0%. Retail sales also bounced, rising by 8.0%. Economists had forecast a 7.6% rise, year-on-year.

On the geopolitical front, barring any unexpected events, there’s unlikely to be anything too negative to weigh.

We are expecting the House to vote on Trump’s impeachment at some point this week, though it is unlikely to end in a conviction…

In the futures markets, at the time of writing, the DAX30 was up by 36.5 points, with the Dow up by 18 points.