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European Equities: The Majors Are in for Pain as Trump Signals Fresh Tariffs

Economic Calendar:

Friday, 2nd August

  • Eurozone Retail Sales (MoM) (Jun)

The Majors

The European majors enjoyed a 2nd consecutive day in the green on Thursday. The CAC40 led the way, rising by 0.7%. The DAX30 and EuroStoxx600 weren’t far behind, with gains of 0.53% and 0.50% respectively.

Fortunately for the European majors, the markets had closed ahead of Trump’s latest tariff threats that roiled the U.S majors on the day and the Asian majors this morning.

The Stats

It was a relatively busy day ahead on the economic data front.

Economic data out of the Eurozone included July manufacturing PMI numbers out of Spain and Italy and finalized PMIs out of France, Germany, and the Eurozone.

Spain’s manufacturing PMI increased from 47.9 to 48.2, which was better than a forecasted rise to 48.1. Italy’s manufacturing PMI also improved, rising from 48.4 to 48.5, coming in ahead of a forecasted 48.0.

The upward trend supported the Eurozone’s manufacturing PMI, which was revised upwards from 46.4 to 46.5. The PMI was down from a June 47.6, however. Germany’s manufacturing PMI was also revised upwards from 43.1 to 43.2, while France’s PMI was revised down from 50.0 to 49.7.

According to the Eurozone’s finalized Markit Survey,

  • The Eurozone’s manufacturing sector contracted for a 6th consecutive month in July. At 46.5, the PMI signaled the sharpest deterioration in operating conditions since Dec-12.
  • A sharp fall in new orders weighed, with new orders seeing the 2nd largest decline in just over 6-years.
  • Export trade deteriorated to the greatest degree since Nov-11.
  • Germany’s manufacturing sector recorded its sharpest deterioration in operating conditions for 7-years.
  • Employment was also on the slide, with the rate of job losses the sharpest since May-13.

Out of the U.S

From outside of the Eurozone, the ISM Manufacturing PMI had little impact on the day. According to the latest ISM Manufacturing PMI survey,

  • The July PMI eased back from 51.7 to 51.2, coming in below a forecasted 52.0, with the production index falling from 54.1 to 50.8.
  • While the headline PMI slipped, the new orders sub-index rose from 50.0 to 50.8. In spite of the uptick in the new orders sub-index, the new export orders sub-index contracted in July. The Index fell from 50.5 to 48.1.
  • The employment index also fell back, with a 2.8 percentage point fall to 51.7.

The Market Movers

From the DAX, there was plenty of red, with Siemens leading the way down, falling by 4.85%, with disappointing earnings outlook weighing. From the auto sector, Volkswagen was amongst the worst performers on the day, falling by 1.87%. Continental and Daimler also saw heavy losses, with the pair ending the day down by 1.73% and by 1.68% respectively. BMW managed to buck the trend on the day with a 0.03% gain.

From the banking sector, Deutsche Bank slid by 3.17%, while Commerzbank managed a 0.39% gain on the day.

From the CAC, it was green across the board for the banking sector. Soc Gen rallied by 5.83% off the back of better than expected earnings. BNP Paribas and Credit Agricole gained 1.58% and 0.83% respectively.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Stats out of the Eurozone are limited to the Eurozone’s June retail sales figures.

While we can expect the numbers to provide direction, the market focus on the day will be on the U.S labor market numbers due out later in the day.

From the geopolitical front, the latest planned rollout of tariffs on Chinese goods will have a material impact on the day and will likely overshadow the stats. The tariffs are due to be rolled out on 1st September as Trump looks to force China to move more quickly on negotiations. Trump’s Twitter account was in full swing and the U.S President threatened even heavier tariffs if trade negotiations fail to make progress.

At the time of writing, the DAX was down by 230.5 points, while the Dow Mini was down by just 18 points.