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European Equities: What Happened to all the Optimism over a Deal?

Economic Calendar:

Tuesday, 14th May

  • German CPI m/m (Apr) Final
  • Spanish CPI y/y (Apr) Final
  • Spanish HICP y/y (Apr) Final
  • German ZEW Current Conditions (May)
  • German ZEW Economic Sentiment (May)
  • Eurozone ZEW Economic Sentiment (May)
  • Eurozone Industrial Production m/m (Mar)

Wednesday, 15th May

  • German GDP q/q (Q1)
  • German GDP y/y (Q1)
  • French CPI m/m (Apr) Final
  • French HICP m/m (Apr) Final
  • Eurozone GDP y/y (Q1) 2nd Estimate
  • Eurozone GDP q/q (Q1) 2nd Estimate

Thursday, 16th May

  • Italian CPI m/m (Apr) Final
  • Eurozone Trade Balance (Mar)

Friday, 17th May

  • Eurozone Core CPI y/y (Apr) Final
  • Eurozone CPI y/y (Apr) Final
  • Eurozone CPI m/m (Apr) Final

The Majors

The European majors were back in the red on Monday. Leading the way down was the DAX30, which slid by 1.52%. The EuroStoxx50 and CAC40 ended the day with 1.21% and 1.22% losses respectively.

Losses came in spite of the DAX futures sitting in the green ahead of the European open.

There were no material stats released through the session to influence appetite for the majors, leaving trade war chatter as the key driver.

A series of messages from the U.S President weighed on risk appetite early. Not only did Trump threaten China with far more punitive trade terms in his second term should an agreement not be in place, but he also sent a message telling China not to retaliate to the latest tariff hike.

While China has been given 1-month to turn things around, as we have seen before, China is no Mexico or Canada.

A retaliation was expected and a retaliation materialized… While covering a smaller amount of U.S goods, the target is agriculture though it may well be more far-reaching than that by the time a deal is done. A total of $60bn worth of U.S goods will face tariffs from 1st June.

Across the European majors, ThyssenKrupp was the worst performing stock on the DAX giving up 6.93% of last Friday’s 24% gain.

It was ultimately the more China sensitive stocks that suffered the most on the day.

From the DAX, the auto sector was amongst the worst performing. Continental and Daimler slid by 5.73% and by 3.93% respectively, with Volkswagen (-2.62%) and BMW (-2.19%) also seeing heavy losses.

From the banking sector, Deutsche Bank and Commerzbank also saw deep red, sliding by 2.43% and by 2.26% respectively.

Elsewhere, BNP Paribas and UniCredit S.p.A fell by 1.56% and by 2.8% respectively.

The Day Ahead

After a quiet start to the week, the economic calendar is on the busier side later this morning.

Eurozone and German economic sentiment figures are due out along with industrial production figures out of the Eurozone.

Finalized April inflation numbers due out of Germany and Spain will unlikely have a material impact in the early part of the day.

Following some better than expected stats out of Germany last week, forecasts are for economic sentiment in Germany to improve. Germany’s economic sentiment figure is key this morning.

Eurozone industrial production figures will also have an impact. Following a pickup in production in Germany, the numbers may come in ahead of forecasts, which would be EUR positive.

Outside of the stats, expect the U.S – China trade war chatter to also influence. Trade tariffs are expected to hit U.S consumers, which would be considered Dollar negative. China has now also retaliated and things could spiral out of control if the 2-sides resume talks. There’s the $325bn worth of Chinese goods yet to be tariffed and no doubt, China will retaliate in kind to such a move.

Following heavy losses across the European majors last week, the markets are going to need some particularly good news to avoid another heavy reversal.

On the earnings front, Allianz GA will release their quarterly results, which will garner limited interest on the day.

At the time of writing, the DAX30 was down by 12 points. The U.S futures things were a little better following Monday’s sell-off. The Dow Mini was up by 52 points.