Strong German Orders Fail to Offset Strife in Catalonia

 

European stock markets mixed, with DAX and FTSE 100 outperforming and slightly higher on the day, while other markets are heading south, led by Spain and Italy. A stronger USD and fresh pressure on Sterling helped the FTSE 100 to outperform, but the gains remain modest as investors hold back ahead of key U.S. jobs data. The DAX is up despite ongoing concerns about Catalonia, which sent the IBEX down. Stronger than expected German manufacturing orders data helped, but markets seem to need more to push the DAX above the 13000 mark for the first time. The mixed session in Europe followed broader gains in Asia. Chinese stocks in Hong Kong tested 2-year highs, the Topix rose for a fourth week and Australia’s ASX finally broke its losing streak and closed the week higher, after rising more than 1% today.

UK productivity is down for a second successive quarter according to the ONS stats office, which reported hourly output to have declined 0.1% in Q2. This follows a 0.5% decline in Q1. On an annual basis, hourly output fell by 0.3%, the first annual contraction seen since 2012-13. The data is consistent with Brexit concerns following the vote to exit the EU last June. The PMI surveys for September highlighted delayed projects and planning related to Brexit, with the government remaining divided and in some disarray after the general election in April.

German Orders Surge in August

Manufacturing orders jumped 3.6% month over month in August, versus expectations for a modest rebound of around 0.6% month over month from a drop in July that was revised up to -0.4% month over month from -0.7% month over month reported initially. The annual rate jumped to 7.8% year over year, tying in with the buoyant PMI readings and ongoing improvements on the labor market. The German economy continues to fire on all cylinders and the labor market is looking increasingly tight, with wage growth of 2.9% year over year in the second quarter.

Spanish markets under pressure again, as the central government in Madrid tightens its grip on Catalonia, while banks and companies reportedly prepare to move offices out of the independent region. The head of Catalan police has been questioned by a court, and the constitutional court issued an injunction against the regional parliament’s planned session Monday, which reportedly was planned to provide the backdrop for an official declaration of independence. Catalan’s separatists meanwhile are said to be split as Madrid continues to take a hardline stance and refuses mediated negotiations. The EU so far views this as an internal matter for Spain, but has made clear that an independent Catalonia won’t get automatic EU membership.