Thursday, 30th May
- Spanish HICP (YoY) (May)
Friday, 31st May
- German Retail Sales m/m (Apr)
- Italian CPI m/m (May)
- German CPI m/m (May)
The European majors took a hit on Wednesday, underperforming the Asian and U.S majors on the day.
Leading the way down on the day was the CAC40, which slid by 1.7%. The DAX30 and EuroStoxx600 were close behind, falling by 1.57% and by 1.43% respectively.
Following the Asian majors into the red from the start of the session, the U.S majors also failed to provide support, as demand for government bonds weighed.
China’s retaliatory measures to Trump’s Monday comments on the prospects of a near-term U.S – China trade agreement continued to drive demand for the safe havens. Economic data and Brexit have added to the current market mood.
Economic data released through the European session was on the heavier side on Wednesday.
Out of France,
French 1sts quarter GDP, May prelim inflation and April consumer spending figures failed to shift sentiment going into the European session.
According to figures released by Insee, the French economy grew by 1.2% year-on-year in the 1st quarter. This was up from the 1st estimate of 1.1%. Quarter-on-quarter, the economy grew by 0.6%, which was in line with 1st estimate figures.
Consumer spending impressed in April, Rising by 0.8%. Spending came in well ahead of a forecasted 0.5% rise and a 0.3% fall in March.
While negative for the EUR, inflationary pressures eased, according to prelim inflation figures. Consumer prices rose by just 0.2% in May, coming in short of a forecasted and April 0.3% increase.
Out of Germany,
While the French stats were skewed to the positive, German economic data raised yet more red flags. According to Destatis, unemployment increased by 60k in May, coming in well ahead of a forecasted 8k fall. The jump in unemployed led to the unemployment rate rising from 4.9% to 5.0%.
ECB Financial Stability Report
With Germany’s numbers sounding the alarm bells, the ECB released its semi-annual financial stability report.
According to the latest report,
- Challenges to financial stability have increased amid downside risks to the economic outlook.
- Heightened political and policy uncertainty could add to public debt sustainability concerns.
- Euro area bank profitability remains subdued and prospects have deteriorated.
The ECB’s outlook and Germany’s disappointing employment figures came at the worse time for the European majors.
Demand for government bonds has been on the rise since Tuesday and continued to sound the alarm bells through Wednesday.
The surge in demand for U.S Treasuries had led to an inversion of the yield curve that extended further on Wednesday, sending the majors into the deep red.
Negative economic outlooks, weak economic data, and an escalation in the U.S – China trade war have all contributed to this week’s shift.
The Market Movers
On the DAX, Wirecard continued to be the investor favorite to reflect sentiment, with an 8.25% slide on Wednesday. ThyssenKrupp was the 2nd worse performing stock on the index, falling by 3.1%.
From the auto sector, Continental slid by 1.92%, with Volkswagen (-0.76%), BMW (-0.91%) and Daimler (-0.28%) also seeing red on the day.
The negative sentiment towards the global economic outlook weighed on German banks, with Commerzbank and Deutsche Bank falling by 1% and 1.89% respectively.
From the CAC, BNP Paribas managed to eke out a 0.15% gain, while Credit Agricole fell by 0.87%. Renault continued to find support, following merger talk, gaining 0.62%.
The Day Ahead
Economic data due out of the Eurozone is on the lighter side in the day ahead. Spain’s May prelim inflation figures are due out later this morning. The markets will likely brush aside the figures, as the markets continue to fixate on global economic indicators and the U.S – China trade war.
Later in the day, 2nd estimate U.S GDP numbers for the 1st quarter are due out alongside weekly jobless claims figures and April trade data.
The GDP estimate will need to impress for the market angst to subside. While of lesser influence, there will be some interest in the trade figures, as Trump looks for the next trading partner to single out. Pending home sales are also due out. We can expect the figures to have a muted impact on risk sentiment on the day.
Trade talk through the day will need to be monitored. Will the U.S President make some comforting statements to ease the market tension?
At the time of writing, the DAX30 was up by 36 points, with the Dow Mini up by 10 points.