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European Equities: Economic Data, Brexit and Trump’s Twitter in Focus

Bob Mason

Economic Calendar:

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 back in the green for the European majors on Thursday. Leading the way was the CAC40, which rallied by 1.51%. The DAX30 and EuroStoxx600 weren’t far behind, with gains of 1.18% and 1.04% respectively.

U.S Treasury yields were on the rise, providing support to the European majors, as trade optimism returned to the markets.

In spite of the improved optimism, the 10-yr – 2-year U.S Treasury yield curve remained inverted at the day’s end.

The improved sentiment towards trade came off the back of comments from Beijing. From Beijing, the government said that it was willing to resolve the trade war in a calm manner. Beijing also confirmed that the September face-to-face trade talks were still on. From Washington, the U.S President also stated that there had been calls with Beijing.

There’s still a long way to go, however. Much will depend on whether the U.S will be willing to remove existing tariffs to allow negotiations to progress.

The Stats

It was a busy day on the Eurozone economic calendar on Thursday.

From France, consumer spending rose by 0.4% in July, coming in ahead of a forecast of 0.3%. In June, spending had fallen by 0.2%. Also positive was an upward revision to GDP numbers. The French economy grew by 0.3% in the 2nd quarter, quarter-on-quarter, revised from 0.2%. Economists had forecast a 0.2% growth.

From Germany, unemployment increased by 4,000, which was in line with forecast. The marginal increased left Germany’s unemployment rate at 5% in August. On the negative side, German consumer prices fell by 0.2% in August, according to prelim figures, which was worse than a forecasted 0.1% fall. In July, consumer prices had risen by 0.5%.

From Spain, inflation figures were also disappointing. The annual rate of inflation eased from 0.5% to 0.3%, which was worse than a forecasted 0.4%. The annual rate of core inflation eased from 0.6% to 0.4%, which was also worse than a forecast of 0.6%.

From the U.S, there were no major shocks to rock the boat. The U.S economy grew by 2% in the 2nd quarter, which was softer than the 1st estimate 2.1%. This was in line with forecast, however.

On the trade front, the goods trade deficit narrowed from $74.16bn to $72.34bn.

The Market Movers

From the DAX, ThyssenKrupp led the way, supported by the shift in trade sentiment, with a 4.16% gain. Germany’s auto sector also found support. Volkswagen led the way, rising by 1.28%. Continental (+1.12%), Daimler (+1.00%) and BMW (+0.99%) weren’t far behind.

Deutsche Bank and Commerzbank also benefited from the upward momentum on the day. The pair rose by 1.18% and by 3.13% respectively.

From the CAC, it was a solid day for the banks. Soc Gen gained 2.01%, with Credit Agricole and BNP Paribas up by 1.68% and 1.55% respectively. From the auto sector, Renault and Peugeot gained 0.54% and 1.78% respectively.

While the majors found strong support on the day, ECB chatter on monetary policy was mixed on the day. ECB’s Klaas Knot was reported to have stated that the Eurozone economy was not yet weak enough to warrant a return to QE.

Comments from incoming ECB President Lagarde were more dovish. While stating that the ECB still had room for rate cuts, she also noted that financial stability risk would need considering.

The majors took a brief hit from what could be considered less dovish commentary from Klaas Knot.

On the VIX Index

The VIX Index saw red for a 3rd day in 4 as the market sentiment towards trade improved. Last Friday’s escalation that had led to a 19.1% jump in the index. On Thursday, the VIX ended the day down by 7.6% to 17.88.

While on the decline, the effects of the ongoing U.S – China trade war on the global economy continue to be reflected in the current levels.

The Day Ahead

It’s another busy day ahead on the Eurozone economic calendar. Ahead of the European open, German retail sales figures and prelim August inflation figures from France will provide direction.

Forecasts are for German retail sales to slide in July, which would be negative for the markets. With inflationary pressures easing, there’s unlikely to be too much influence from the numbers out of France.

Of greater interest will be the Eurozone’s prelim inflation numbers and unemployment rate due out later in the day.

From the U.S, the FED’s preferred Core PCE Price Index figures are due out, which will influence. U.S personal spending numbers and Chicago’s August PMI are also there for consideration.

Finalized consumer sentiment figures for August should have a muted impact on the day.

Outside of the stats, it’s Friday, so the markets will need to monitor Trump’s Twitter account and there’s Brexit to also consider.

In the futures markets, at the time of writing, the DAX was up by 10.5 points, while the Dow Mini was down by 22 points.

This article was originally posted on FX Empire

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