European Equities: Economic Data, Tariff Talk and the Coronavirus in Focus

Bob Mason

Economic Calendar:

Monday, 27th January 2020

German IFO Business Climate Index (Jan)

Wednesday, 29th January

GfK German Consumer Climate (Feb)

Thursday, 30th January

German Unemployment Change (Jan)

German Unemployment Rate (Jan)

Eurozone Unemployment Rate (Dec)

German CPI (MoM) (Jan) Prelim

Friday, 31st January 2020

French GDP (QoQ) (Q4) 1st Estimate

German Retail Sales (MoM) (Dec)

French Consumer Spending (MoM) (Dec)

Spanish HICP (YoY) (Jan) Prelim

Spanish CPI (YoY) (Jan) Prelim

Spanish GDP q/q (Q4) 1st Estimate

Eurozone CPI (YoY) (Jan) Prelim

Eurozone Core CPI (YoY) (Jan) Prelim

Eurozone GDP q/q (Q4) 1st Estimate

Eurozone GDP y/y (Q4) 1st Estimate

The Majors

It was a bullish end to the week for the European majors, with the DAX30 rallying by 1.41% to lead the way on Friday. The CAC40 and EuroStoxx600 saw more modest gains of 0.88% and 0.86% respectively.

Support on the day came off the back of more upbeat economic data from the Eurozone and from the U.S at the end of the week.

Following the ECB’s dovish tones on Thursday, PMI numbers delivered a more optimistic mood for the markets.

Adding to the upside on the day was the World Health Organization’s decision to hold back from announcing a global emergency over the coronavirus.

The WHO’s decision came ahead of the Chinese New Year holidays, where literally hundreds of millions are expected to travel domestically and globally during the lunar holidays.

While the markets were in a buoyant mood, the reality is that the virus will have an impact on China’s economy in the 1st quarter. That’s never a good thing for the global markets and risk appetite.

The Stats

It was a busy day on the Eurozone economic calendar on Friday. January prelim private sector PMIs out of France, Germany and the Eurozone provided support on the day.

French Private Sector Numbers

France’s Composite PMI fell from 52.0 to a 4-month low 51.5 in January, according to the prelim survey. Economists had forecast a PMI of 52.0.

  • The manufacturing PMI rose from 50.4 to 2-month high 51.0, while the services PMI fell from 52.4 to a 4-month low 51.7.

  • At the aggregate level, new work growth eased to the slowest pace since Sep-19, weighed by new order growth in the services sector.

  • International demand stalled. A fall in new orders in the services sector was offset by a renewed increase in the manufacturing sector.

  • Optimism hit a 9-month high, however, supporting continuing hiring in the services sector.

German Private Sector Numbers

Germany’s Composite PMI increased from 50.2 to 51.1 in January, according to prelim figures, coming in ahead of a forecast of 50.5.

  • The manufacturing PMI increased from 43.7 to an 11-month high 45.2, with the services PMI rising from 52.9 to a 5-month high 54.2.

  • New business across the private sector increased for the first time in 7-months. Across the manufacturing sector, new orders declined at the slowest pace in 15-months.

  • Demand from overseas provided support, with goods export orders falling at the slowest pace in 17-months.

  • The pickup in output and demand supported the quickest pace in hiring for 5-months, driven by hiring in the services sector.

  • Optimism across the private sector hit a 16-month high, driven by a jump in optimism across the manufacturing sector.

Eurozone Private Sector Numbers

For the Eurozone, the composite PMI held steady at 50.9 in January, falling short of a forecast o5 51.2.

  • The manufacturing PMI increased from 46.3 to a 9-month high 47.8, while the services PMI fell from 52.8 to a 2-month low 52.2.

  • Combined growth across France and Germany was offset by near-stagnation across the rest of the Eurozone.

  • The rate of expansion for the private sector continued to run at the weakest pace in six-and-a-half-years.

  • Service sector growth continued to deliver, with the manufacturing sector still in contraction.

  • A muted pace of output growth reflected a lack of momentum in new order inflows.

  • While new business increased for a 2nd consecutive month, the rate of expansion was marginal.

  • A 16-month high in optimism supported a pickup in the pace of job creation. There were further cuts in headcount across the manufacturing sector, however.

From the U.S

The all-important services PMI increased from 52.8 to 53.2, supporting a rise in the composite from 52.7 to 53.1. It wasn’t all positive, however, with the manufacturing PMI falling from 52.4 to 51.7.

The Market Movers

For the DAX: It was yet another bearish day for the auto sector on Friday. Continental tumbled by 3.87% to lead the way, with BMW and Daimler sliding by 1.53% and 1.96% respectively. Volkswagen declined by a more modest 0.73%.

It was a bullish day for the banks, however, with Commerzbank and Deutsche Bank rising by 1.20% and by 0.26% respectively.

Deutsche Lufthansa continued to struggle, falling by 0.86%, with negative sentiment towards the coronavirus lingering.

From the CAC, it was a mixed day for the banks. BNP Paribas fell by 0.09%, while Credit Agricole and Soc Gen rose by 0.68% and by 0.05% respectively.

It was also a mixed day for the French auto sector. Peugeot rose by 0.78%, while Renault continued to struggle, falling by 1.93%.

Air France-KLM also saw red on the day, with a 0.51% fall coming off the back of the negative sentiment towards the coronavirus.

On the VIX Index

The VIX rose for a 4th consecutive day on Friday, rallying by 12.17%. Following on from a 0.54% gain on Thursday, the VIX ended the day at 14.6.

While the European majors closed out with solid gains, the U.S equities hit reverse on Friday. Updates on the spread of the coronavirus offset the effects of upbeat economic data on the day.

News of the Chinese government’s lockdown of a number of major cities had provided support earlier in the week. In spite of the government’s best efforts, the spread of the virus continued to reach new geographies.

The Day Ahead

It’s a quiet day on the Eurozone economic calendar. Germany’s Ifo Business Climate Index figures will provide direction on the day.

From the U.S, new home sales figures will likely have a muted impact on the majors on the day.

While the numbers out of Germany will influence, we can expect any chatter on EU trade tariffs and updates on the coronavirus to have a greater impact.

News of the continued spread of the virus will likely offset the effect of any positive stats on the day. Expect the European majors to kick off the week in the red…

In the futures markets, at the time of writing, the Dow was down by 284 points.

This article was originally posted on FX Empire

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