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European Equities: It’s all about Trade for Now

Economic Calendar:

Wednesday, 8th May

  • German Industrial Production m/m (Mar)

Friday, 10th May

  • German Trade Balance (Mar)
  • French Non-Farm Payrolls (q/q (Q1)

The Majors

It was another day in the red for the European majors on Tuesday. The CAC40 led the way, sliding by 1.60%, with the DAX close behind, down by 1.58%. The EuroStoxx600 also saw deep red, falling by 1.37% on the day.

While the U.S majors had shown some resilience at the start of the week, limiting the downside for the likes of the DAX, it was a different story on Tuesday.

Talks of punitive tariffs being rolled out later in the week continued on Tuesday, adding further uncertainty to the trade talks and economic outlook.

The sell-off came despite chatter from Beijing confirming that Vice Premier Liu He will visit the U.S with talks set to kick off on Thursday.

The Stats

While there was plenty of anxiety over what lies ahead on the trade front, economic data out of Germany failed to provide any comfort.

German factory orders rose by just 0.6% in March, according to figures released by Destatis. Orders came up well short of a forecasted 1.5% increase. The only good news was that a run of 4 consecutive monthly falls had come to an end. Year-on-year, orders were down by 6%, nullifying the effects of the month-on-month gain.

From the EU, the EU Commission released its economic forecasts, which were on the more optimistic side. The Commission forecasted that the economic slowdown was likely to bottom out this year. The Commission forecasted a 1.2% GDP for the euro area for 2019. Growth for 2020 was forecasted to pick up to 1.5%.

While forecasts were relatively favorable, the EU Commission did note that downside risks to the outlook remain prominent…

Across the Majors

On the corporate earnings front, BMW delivered the big news of the day. Profits tumbled by 74%. While a legal provision of €1.4bn contributed to the slide, price competition and tech costs also weighed. With the legal provision excluded, earnings for BMWs main unit was down by 42% in the 1st quarter.

BMW shares ended the day down 3.79%, with the rise in trade tensions adding downward pressure. Volkswagen fared slightly better, sliding by 3.32%, while Daimler fell by 2.71%.

Elsewhere, BASF continued to slide following a 4.8% fall on Monday. BASF ended the day with a 4.14% loss.

With the markets losing hope of a near-term resolution to the ongoing U.S – China trade war, bank stocks also saw heavy losses.

Deutsche Bank and Commerzbank ended the day with 2.91% and 2.25% losses. On the CAC40, BNP Paribas fell by 2.11%, with Italy’s UniCredit S.p.A tumbling by 3.2%.

The Day Ahead

It’s another quiet day ahead on the economic data front. Germany’s March industrial production figures are due out later this morning.

Forecasts are negative for the DAX and the EUR, with production forecasted to fall by 0.5%. When considering the state of the German economy, it’s perhaps not surprising to know that production has fallen in 9 of the last 12-months.

Putting aside a 0.7% increase last month, production had fallen 4-months in a row.

Earlier this morning, trade data out of China provided some early support. While exports fell by 2.7%, imports unexpectedly rose by 4%.

With no material stats due out of the U.S later in the day, the focus will remain on the U.S – China trade talks. Talks are due to resume tomorrow and we can expect the markets to be in for a choppy day ahead. Any hint of China pulling out and expect panic stations… There could also be some more posturing from the Oval Office later today…

At the time of writing, the futures reflected a sense of calm as the Asian majors took a dive. The DAX30 was up by 23.5 points.