European Equities: Geopolitics and the ECB’s Monetary Policy Meeting Minutes in Focus

The Majors

The risk pendulum swung against the European majors on Thursday, with the DAX falling by 1.41% to lead the way.

Things were not much better for the CAC40 and EuroStoxx600, which ended the day with losses of 1.15% and 0.75% respectively.

While economic data came in better than had been forecast, rising tension between the U.S and China was back in focus.

News of the House of Representatives passing a Bill to oust Chinese companies from U.S exchanges weighed on risk sentiment on Thursday.

Things are unlikely to get better anytime soon and the latest move brings into doubt the viability of the phase 1 trade agreement.

The Stats

It was a busy day on the Eurozone economic calendar on Thursday. May’s prelim private sector PMIs for France, Germany, and the Eurozone was in focus early in the European session.

France’s Manufacturing PMI increased from 31.5 to 40.3, with the Services PMI rising from 10.2 to 29.4. Economists had forecast a Manufacturing PMI of 36.1 and Services PMI of 27.8.

Germany’s Manufacturing PMI rose from 34.5 to 36.8, with the Services PMI increasing from 16.2 to 31.4. Economists had forecast a Manufacturing PMI of 39.2 and Services PMI of 26.6.

For the Eurozone, the Manufacturing PMI rose from 33.4 to 39.5, with the Services PMI increasing from 12.0 to 28.7.

The Eurozone’s Composite PMI came in at 30.5, which was up from an April 13.6 and ahead of a forecasted 25.0.

According to the prelim May survey:

  • The Composite Output Index rose from 13.6 to a 3-month high 30.5.
  • Service and manufacturing sector activity hit 3-month and 2-month highs respectively.
  • While service sector activity contracted at a slower pace, it was still the 3rd steepest decline on record. Social distancing and lockdown measures continued to weigh on businesses including hotels, restaurants, and travel tourism.
  • Jobs continued to be cut at an unprecedented rate, with both sectors contributing.
  • Inflows of new business fell by the 3rd greatest extent ever recorded. In spite of this, the smallest decline in new business in 3 months suggested that the downturn had bottomed out.

From the U.S

Prelim private sector PMIs and the weekly jobless claims were also in focus later in the day.

In the week ending 15th May, U.S initial jobless claims rose by 2.438m, following on from a 2.687m jump in the week prior. Economists had forecast 2.4m claims for the week.

Philly FED numbers also failed to impress, with the Philly FED’s Manufacturing Index rising from -46.7 to -43.1 in May. Economists had forecast a rise to -41.5.

In May, the Services PMI rose from 26.7 to 36.9, with the Manufacturing PMI increasing from 36.1 to 39.8.

The markets had hoped for a marked improvement in service sector activity. With job losses continuing to rise in May, an easing in lockdown measures failed to spur the services sector into action…

The Market Movers

For the DAX: It was a mixed day for the auto sector on Thursday. Daimler fell by 1.18% to lead the way down. BMW and Continental and weren’t far behind, with losses of 0.60% and 0.62% respectively. Volkswagen bucked the trend, with a 0.15% gain.

It was a bearish day for the banks, however. Deutsche Bank fell by 1.23%, with Commerzbank sliding by 2.55%.

Deutsche Lufthansa slid by 3.76%, following Wednesday’s 7.74% rally.

From the CAC, it was a bearish day for the banking sector on Thursday. Credit Agricole slid by 3.03% to lead the way down. BNP Paribas and Soc Gen ended the day with losses of 1.86% and 2.53% respectively.

It was also a bearish day for the auto sector, after Wednesday’s partial recovery. Peugeot fell by 1.94%, with Renault falling by 1.52%.

Air France-KLM continued to see red, with a 1.25% decline, with Airbus SE ending the day with a 0.73% loss.

On the VIX Index

It was only a 2nd day in the green out of 6 on Thursday. Partially reversing an 8.32% fall from Wednesday, the VIX rose by 5.50% to end the day at 29.5.

Market jitters over rising tension between the U.S and China returned as the U.S government looked to push Chinese companies out of the international market.

Economic data added to the market angst, with the initial jobless claims seeing another sizeable jump in the week ending 15th May.

On Thursday, the S&P500 fell by 0.78%, with the Dow and NASDAQ seeing losses of 0.41% and 0.97% respectively.

VIX 22/05/20 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. There are no material stats due out to provide the majors with direction.

Through the early part of the day, chatter from Beijing and Washington and COVID-19 news updates will remain the key drivers.

Later in the day, with no material stats due out of the U.S, expect the markets to be wary of any Trump Twitter account. The U.S markets are closed on Monday, so the majors could come under pressure later in the session…

On the monetary policy front, the ECB monetary policy meeting minutes are due out and will need to assure continued support. There is also the issue of an EU COVID-19 aid package…

The Latest Coronavirus Figures

On Thursday, the number of new coronavirus cases rose by 106,139 to 5,188,800. On Wednesday, the number of new cases had risen by 99,724. The daily increase was higher than both Wednesday’s rise and 93,671 new cases from the previous Thursday.

France, Germany, Italy, and Spain reported 1,976 new cases on Thursday, which was down from 2,856 new cases on Wednesday. On the previous Thursday, 4,230 new cases had been reported.

From the U.S, the total number of cases rose by 28,089 to 1,620,080 on Thursday. On Wednesday, the total number of cases had risen by 21,408. On Thursday, 14th May, a total of 26,397 new cases had been reported.

In the futures markets, at the time of writing, the DAX was up by 58.5 points, with the Dow up by 96 points.