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European Equities: Reaction to the FOMC Meeting Minutes Likely to Overshadow Today’s Stats

Economic Calendar

Thursday, 6th January

German Factory Orders (MoM) (Nov)

IHS Markit Construction PMI (Dec)

German CPI (MoM) (Dec)

Friday, 7th January

German Industrial Production (MoM) (Nov)

German Trade Balance (Nov)

French Consumer Spending (MoM) (Nov)

Eurozone CPI (YoY) (Dec) Prelim

Eurozone Retail Sales (MoM) (Nov)

The Majors

It was yet another bullish day for the European majors on Wednesday. The EuroStoxx600 rose by 0.07%, with the CAC40 and the DAX30 ending the day up by 0.74% and by 0.81% respectively.

Economic data from the Eurozone failed to weigh on risk sentiment in spite of the Eurozone’s composite PMI falling to a 9-month low. Eurozone economic powerhouse Germany saw its composite PMI fall to an 18-month low in December. The markets were in forgiving mood, with the services sector doing the damage as a result of the Omicron strain and surge in new cases.

The upside on the day was modest, however, with the FOMC meeting minutes out after the European close.

The Stats

It was another busy Eurozone economic calendar this morning. Member state and Eurozone service sector and composite PMIs were in focus.

Member States

For Spain, the services PMI fell from 59.8 to 55.8 versus a forecasted 57.5.

Service sector activity in Italy saw slower growth, with the PMI down from 55.9 to 53.0. Economists had forecast a fall to 54.0.

For France, the services PMI fell from 57.4 to 57.0, which was down from a prelim 57.1.

Germany’s services PMI declined from 52.7 to 48.7, which was up from a prelim 48.4.

The Eurozone

For the Eurozone, the services PMI fell from 55.9 to 53.1, which was down from a prelim 53.3.

As a result, the Composite PMI slipped from 55.4 to 53.3, which was down from a prelim 53.4.

According to the December survey,

  • Economic growth eased to a 9-month low in December.
  • Rising COVID-19 cases had a more marked impact on service sector activity.
  • At the end of the year, supply-related disruptions continued to impact production schedules.
  • In spite of supply chain issues, the manufacturing sector outpaced the services sector for the 1st time since July.
  • Composite output PMIs by country all declined during December.
  • Slower rates of growth were seen in Ireland, France, Spain, and Italy.
  • Demand for goods and services across the Eurozone rose at the slowest pace since March.
  • More significantly, demand from international clients rose at the slowest pace since January.
  • By contrast, business optimism improved marginally in December, coinciding with a pickup in the pace of hiring.
  • On the inflation front, output charges and input costs increased at the second-sharpest rates on record.

By Country

  • Ireland ranked 1st, with a composite PMI of 56.5.
  • France came in 2nd, with a 2-month low 55.8, following by Spain, with an 8-month low 55.4.
  • German sat behind Italy at the bottom of the table with an 18-month low 49.9.

From the U.S

ADP nonfarm employment change and finalized services and composite PMI numbers were in focus.

In December, the ADP reported an 807K surge in nonfarm payrolls versus a forecasted 400k increase. Nonfarm payrolls had increased by 505k in November, according to the ADP.

Private sector PMI numbers were also upbeat. In December, the Markit Services PMI slipped from 58.0 to 57.6, which was up from a prelim 57.5.

On the monetary policy front, the FOMC meeting minutes were released after the European close. The U.S markets responded negatively to more hawkish minutes than expected, which will likely weigh on the majors going into the European open. The minutes revealed that the FED may need to lift rates sooner than previously priced in.

The Market Movers

For the DAX: It was another bullish day for the auto sector on Wednesday. Daimler led the way once more, rallying by 4.01%, with BMW and Volkswagen ending the day up by 2.18% and by 2.15% respectively. Continental saw a more modest 1.69% gain on the day.

It was also a bullish day for the banks. Deutsche Bank rose by 1.35%, with Commerzbank gaining 1.99%.

From the CAC, it was a bullish day for the banks. BNP Paribas rose by 0.13%, with Soc Gen and Credit Agricole ending the day up by 1.02% and by 1.00% respectively.

The French auto sector also had a bullish session. Stellantis NV and Renault rallied by 5.10% and by 5.31% respectively.

Air France-KLM gave up some of Tuesday’s 8.13% gain, falling by 1.62%, while Airbus SE rose by 1.28%

On the VIX Index

It was a 2nd consecutive day in the green for the VIX on Wednesday, marking just the 3rd rise in 11 sessions.

Following a 1.87% gain on Tuesday the VIX jumped by 14.05% to end the day at 19.73.

The NASDAQ tumbled by 3.34%, with the Dow and the S&P500 seeing losses of 1.07% and 1.94% respectively.

VIX 060122 Daily Chart

The Day Ahead

It’s quieter day ahead on the Eurozone’s economic calendar. Economic data includes German factory orders, construction PMI, and inflation figures. Expect factory orders for November and prelim inflation figures for December to be key.

From the U.S, the market’s preferred ISM Non-Manufacturing PMI and weekly jobless claims will also influence later in the session. The markets will be looking for any impact of the Omicron strain on labor market conditions and service sector activity.

Going into the open, the FOMC meeting minutes from overnight will set the tone following the sell-off in the U.S. China’s Caixin services PMI, due out later this morning, will unlikely have an impact, however.

Away from the economic calendar, COVID-19 news will need continued monitoring. While it has been a bullish start to the year, downside risks remain over the Omicron strain and any news of new strains.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 82 points, while the DAX was down 157 points.

For a look at all of today’s economic events, check out our economic calendar.