European Equities: Geopolitics and Manufacturing PMIs in Focus

Economic Calendar:

Monday, 1st June

Spanish Manufacturing PMI (May)

Italian Manufacturing PMI (May)

France Manufacturing PMI (May) Final

Germany Manufacturing PMI (May) Final

Eurozone Manufacturing PMI (May) Final

Tuesday, 2nd June

Spanish Unemployment Change

Wednesday, 3rd June

Spanish Services PMI (May)

Italian Services PMI (May)

German Unemployment Change (May)

German Unemployment Rate (May)

French Services PMI (May) Final

German Services PMI (May) Final

Eurozone Markit Composite PMI (May) Final

Eurozone Services PMI (May) Final

Eurozone Unemployment Rate (Apr)

Thursday, 4th June

Eurozone Retail Sales (MoM) (Apr)

ECB Monetary Policy Decision

ECB Press Conference

Friday, 5th June

German Factory Orders (MoM) (Apr)

The Majors

It was a bearish end to the week for the European majors, with a run of 5 consecutive days in the green coming to an end for the DAX30.

The DAX30 led the way down sliding by 1.65%, with the CAC40 and EuroStoxx600 falling by 1.59% and 1.44% respectively.

Economic data from the Eurozone took a back seat on the day, as the markets looked ahead Trump’s news conference. The U.S President had announced earlier in the week that he would introduce measures against China in response to the new security law for HK.

There had been no details ahead of the post-European close news conference to placate the markets earlier in the day.

Late in the European session, U.S economic data added to the market angst at the end of the month.

The Stats

It was a busy day on the Eurozone economic calendar on Friday. Key stats included French and German retail sales figures for April, 2nd estimate GDP numbers for France and prelim inflation figures for May.

There was nothing positive for the markets to consider. There were also no surprises in the slump in consumer spending in April.

Consumer prices were also in decline in the month, which was in line with market expectations.

The only positive was an upward revision to GDP numbers out of France, though really nothing for the markets to get excited about.

While the French economy contracted by 5.3% in the 2nd quarter, consumer spending tumbled by 20.2% following a 16.9% fall in March.

Germany recorded a 5.3% fall in spending, following on from a 4% slide in March.

From the U.S, it was a busy day on the economic calendar.

It was also a busy day on the economic calendar. April stats took a back seat, however.

Chicago’s PMI and finalized consumer sentiment figures for May did disappoint, however.

Chicago’s PMI fell from 35.4 to 32.3, with the Consumer Sentiment Index revised down from a prelim 73.7 to 72.3. This was up just marginally from an April 71.8.

The numbers were certainly not good enough to support those expecting a speedier economic recovery from the April abyss.

The Market Movers

For the DAX: It was a bearish end to the week for the auto sector on Friday. Volkswagen and Daimler slid by 2.37% and by 2.78% respectively to lead the way down. BMW and Continental saw more modest losses of 1.41% and 2.10% respectively.

It was also a bearish day for the banks. Deutsche Bank declined by 1.39%, with Commerzbank sliding by 6.96%.

Deutsche Lufthansa also hit reverse, falling by 2.68% to end a run of 4 consecutive days in the green for the week.

From the CAC, bank stocks were under pressure on Friday. BNP Paribas and Soc Gen slid by 4.27% and by 4.92% respectively, with Credit Agricole falling by 2.15%.

The auto sector saw a 2nd consecutive day in the red, with Peugeot and Renault sliding by 4.65% and by 7.74% respectively.

Air France-KLM and Airbus SE also saw red, with the pair falling by 5.77% and by 5.69% respectively.

On the VIX Index

It was back into the red for the VIX on Friday. Reversing a 3.51% gain from Thursday, the VIX fell by 3.78% to end the day at 27.5.

A late reversal led to the loss on the VIX as the markets responded to Trump’s news conference late in the U.S session.

While Trump announced sanctions and an end to the U.S relationship with HK, the phase 1 trade agreement was left untouched. An olive branch or saving face… It was good enough for the U.S equity markets on the day that recovered early losses.

Economic data from the U.S did not help, however, which had also pressured the markets ahead of the news conference.

VIX 01/06/20 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. Key stats include May’s manufacturing PMIs out of Italy and Spain. Finalized numbers are also due out of France, Germany, and the Eurozone.

The markets will be looking for a slower pace of contraction in Italy’s manufacturing sector mid-way through the 2nd quarter.

Finalized numbers for Germany and the Eurozone will also need to avoid downward revisions to support the majors.

Later in the day, the markets preferred ISM Manufacturing PMI from the U.S will also garner plenty of interest. If the Chicago PMI from last week is anything to go by, the markets may be in for a surprise.

Ahead of the European session, China’s Caixin Manufacturing PMI drew attention, with the PMI rising from 49.4 to 50.7 in May. From the weekend, the NBS PMIs were fairly steady…

Ultimately, however, expect the markets may be in the hands of the news wires. Any Beijing response to the latest moves by the U.S administration will be the key driver. Expect the U.S administration to also react to any retaliation from China. Status quo would suggest Trump’s move was nothing more than muscle-flexing…

COVID-19 news updates will also need monitoring. Late last week, we saw a pickup in new cases. A continued uptrend will also test support for riskier assets. Medical experts continue to warn of the easing in lockdown measures coming too soon. Sunday’s numbers should ease any immediate concerns, however.

The Latest Coronavirus Figures

On Sunday, the number of new coronavirus cases rose by 112,809 to 6,263,071. On Saturday, the number of new cases had risen by 124,155. The daily increase was lower than Saturday’s rise while up from 101,608 new cases from the previous Sunday.

France, Germany, Italy, and Spain reported just 991 new cases on Sunday, which was down from 3,045 new cases on Saturday. On the previous Sunday, 1,470 new cases had been reported.

From the U.S, the total number of cases rose by 20,569 to 1,837,170 on Sunday. On Saturday, the total number of cases had risen by 23,338. On Sunday 24th May, a total of 20,190 new cases had been reported.

In the futures markets, at the time of writing, the DAX was up by 167.5 points, with the Dow up by 57 points.

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