European Equities: U.S Inflation the Key Driver Following Powell’s Testimony

Economic Calendar

Wednesday, 12th January

Eurozone Industrial Production (MoM) (Nov)

Friday, 14th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

ECB President Lagarde Speaks

The Majors

It was a bullish day for the European majors on Tuesday. The DAX30 rallied by 1.10%, with the CAC40 and the EuroStoxx600 rising by 0.95% and by 0.84% respectively. Tuesday’s gains brought to an end a 3-day losing streak.

A quiet economic calendar left the majors in the hands of ECB President Lagarde and FED Chair Powell. Market jitters over persistent inflationary pressure and possible influence on monetary policy has tested support for riskier assets at the turn of the year.

Away from the economic calendar, earnings were back in focus, with optimism of another upbeat season adding to the upside. The gains were not enough to fully reverse Monday’s sell-off, however, as the markets await U.S inflation figures due out today and tomorrow.

The Stats

There were no major stats for the markets to consider. In spite of the anticipation, there were no policy related comments from the ECB President to influence.

From the U.S

There were also no major stats from the U.S to provide the majors with direction late in the day. The lack of stats left the spotlight on FED Chair Powell, who gave testimony to lawmakers.

Market reaction to testimony was positive, with the FED Chair stating that the economy can cope with the tightening monetary policy. Powell noted that the economy has expanded rapidly in spite of COVID-19. On the inflation front, Powell said that inflation needs more attention. The FED will ensure that high inflation does not become entrenched. Powell also noted that, while a move on monetary policy to normal is needed, it’s a long road to normal.

The Market Movers

For the DAX: It was another mixed day for the auto sector on Tuesday. Continental and Daimler ended the day down by 0.59% and by 0.70% respectively. BMW rose by 0.84%, however, with Volkswagen gaining 0.33%.

It was a bearish day for the banks. Deutsche Bank fell by 0.48%, with Commerzbank sliding by 4.12%.

From the CAC, it was a mixed day for the banks. Credit Agricole slipped 0.19%, while Soc Gen and BNP Paribas ended the day up by 0.20% and by 0.56% respectively.

The French auto sector also had a mixed session. Stellantis NV rallied by 2.09%, while Renault ended the day with a 1.26% loss.

Air France-KLM and Airbus SE saw modest gains of 0.26% and by 0.42% respectively.

On the VIX Index

It was back into the red for the VIX on Tuesday. Reversing a 3.41% gain from Monday, the VIX fell by 5.10% to end the day at 18.41.

The NASDAQ rallied by 1.41%, with the Dow and the S&P500 seeing gains of 0.51% and 0.92% respectively.

VIX 120122 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone’s economic calendar. Industrial production figures for the Eurozone will be in focus through the early part of the European session. The November figures are unlikely to influence the ECB’s views on inflation and monetary policy, however, which should limit the impact on the majors.

Later in the session, U.S inflation figures for December will be key. Expect plenty of market sensitivity to the numbers, Softer inflation would be the ideal scenario for the markets after Powell’s testimony to lawmakers.

Inflation figures from China, due out ahead of the European open, will likely set the tone.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 10 points.

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