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European Equities: Economic Data and Bonds Yields To Influence

Bob Mason

Economic Calendar:

Thursday, 29th August

  • French Consumer Spending (MoM) (Jul)
  • French GDP (QoQ) (Q2)
  • Spanish HICP (YoY) (Aug) Prelim
  • German Unemployment Change (Aug)
  • German Unemployment Rate (Aug)
  • German CPI (MoM) (Aug) Prelim

Friday, 30th August

  • German Retail Sales (MoM) (Jul)
  • Italian CPI (MoM) (Aug) Prelim
  • Eurozone CPI (YoY) (Aug) Prelim
  • Eurozone Unemployment Rate (Jul)

The Majors

It was a day in the red for the European majors on Wednesday. Leading the way down was the CAC40, which fell by 0.34%. The DAX30 and EuroStoxx600 weren’t far behind, with losses of 0.25% and 0.20% respectively.

U.S Treasury yields pressured the European majors through the early part of the day. The 10-year and 2-year U.S yield curve inversion hit levels not seen since 2007.

The yield curve inversion continues to signal an upcoming recession and the deepening to levels not seen since before the GFC was quite an alarm bell…

Adding further pressure on the European majors was news of British Prime Minister Johnson requesting the Queen to suspend Parliament. Closure of the UK Parliament would raise the stakes of a no-deal Brexit.

On the positive, news of the Five Star Movement making progress to form a coalition government was a positive, albeit minor… Late on Wednesday news hit the wires of the Five Star Movement and the Democratic Party reaching an agreement to form a coalition government. The two sides also agreed to leave Conte on as Prime Minister.

For the League Party and Salvini, last week’s vote of no confidence and call for a snap election backfired… Salvini and the League Party may well have won a snap election. He hadn’t counted on two rival parties uniting to scupper his plans.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Wednesday. Economic data was limited to consumer confidence figures out of Germany.

According to the GfK Consumer Climate Study,

  • Consumer confidence held steady in August, with the indicator holding steady at 9.7. Economists had forecast a fall to 9.6,
  • While the headline figure remained steady, the devil was in the details. The economic expectation indicator fell by 8.3 points to -12 in August.
  • Year-on-year, the sub-index was down by 30 points to leave the index at its lowest level since Jan-13.
  • Negative sentiment towards the U.S – China trade war, the threat of tariffs on German exports and Brexit remain negatives.
  • The income expectations sub-index also fell in August, falling by 0.7 points to 50.1.
  • On the plus side, the propensity to buy indicator rose by 2.5 points to 48.8 points, leaving the index down by less than 6 points year-on-year.

From the U.S, there were no material stats to provide direction later in the day.

The Market Movers

From the DAX, Daimler and BMW were amongst the best performers, ending the day with gains of 0.54% and 0.18% respectively.  Continental and Volkswagen saw red, however, with the pair falling by 0.2% and 0.07% respectively.

While it was mixed for the auto sector, bank stocks bounced back late in the day. Deutsche Bank rose by 0.31%, with Commerzbank up by 0.57%.

The DAX had been down by as much as 1.33% before finding support later in the day

From the CAC, it was a mixed day for the banks. Credit Agricole rose by 0.20%, while BNP Paribas and Soc Gen fell by 0.31% and 0.09% respectively. From the auto sector, Renault and Peugeot fell by 0.25% and 0.38% respectively.

The CAC40 also recovered from losses of 1.19%, with support kicking in late in the session.

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. Economic data due out of France include consumer spending and 2nd quarter GDP ahead of the open.

Later in the morning, Germany’s August unemployment change figures and unemployment rate are due out.

Following Wednesday’s GfK consumer confidence figures, labor market conditions will need to hold steady to support consumer spending.

Barring any marked pick up in inflationary pressures, we would expect prelim August inflation figures out of Spain and Germany to be brushed aside.

Out of the U.S 2nd estimate GDP numbers for the 2nd quarter and July trade figures will also provide direction.

With the U.S Treasury yield curve inversion on Wednesday, any downward revision to growth will likely spook the markets further.

Outside of the stats, expect Brexit chatter and any further comments from the Washington and Beijing on trade to also influence.

In the futures markets, at the time of writing, the DAX was down by 67 points, while the Dow Mini was down by 92 points.

This article was originally posted on FX Empire