Stocks Consolidate as Producer Sentiment is Mixed

European stocks slightly down, in tepid markets. The DAX had a volatile week, with record highs over 12900 early in the week, followed by a correction to the 12700-12800 range. The Euro Stoxx 50 is down  after mixed PMI readings that suggest a slowdown in growth momentum. The FTSE 100 meanwhile is pressured by a stronger currency and hawkish comments from outgoing BoE member Forbes. Asian markets managed to mostly post slight gains, with the CSI 300 once again outperforming and up 0.91% at the close. With oil prices stabilizing below USD 43 per barrel investors remained cautious and U.S. stock futures are narrowly mixed.

French Q1 GDP was revised up to 0.5% quarter over quarter, from 0.4% quarter over quarter reported with the last estimate. which lifted the annual rate to 1.1% year over year. This meant growth was actually unchanged from the 0.5% quarter over quarter in Q4 last year, which leaves the economy on a much better trajectory than originally thought, especially as the first advanced reading actually reported growth of just 0.3% quarter over quarter. The data backs the ECB’s view that the recovery is also broadening across countries.

The breakdown showed a sharp improvement in gross fixed capital formation, but the slowdown in consumption, which actually stagnated in the first quarter. Equally, the -0.7% quarter over quarter correction in exports is disappointing. Looking ahead, yesterday’s business confidence readings were mixed, but still indicated that Macron’s convincing victory in the election has underpinned confidence in the recovery and with the labour market improving consumption has a good chance to pick up again. It will be crucial though that Macron manages to push through his reform agenda in order to finally lift long term growth potential.

European PMI Were Mixed

Eurozone PMIs mixed, with the manufacturing reading rising to 57.3 from 57.0, while the services reading dropped to 54.7 from 56.3, leaving the composite at 55.7, down from 56.8 in May. A weaker than expected number, but still pointing to relatively robust growth across both sectors. Overall orders slowed somewhat, but the industrial sector posted the stronger rise in orders since February 2011, according to Markit also thanks to robust external demand amid a weaker EUR. The export orders index is at the highest level in six years. Employment continues to expand at a strong pace, with job creation in the services sector at the highest level since early 2008.