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European Equities: Geopolitics and COVID-19 to Remain Key Drivers

Bob Mason

Economic Calendar:

Thursday, 25th June

GfK German Consumer Climate (Jul)

The Majors

It was a particularly bearish day for the European majors on Wednesday. Following some impressive PMI numbers from Tuesday, economic data took a back seat as the markets shifted focus to the recent upward trend in the new COVID-19 case in the U.S and elsewhere.

Adding to the market angst on the day was chatter from the U.S administration of possible tariffs on the EU and the UK. The U.S is reportedly considering $3.1bn worth of tariffs targeting France, Germany, Spain, and the UK.

Another distraction tactic by the U.S administration, which had forced the reopening of U.S states in a bid to kick-start an economic recovery.

If the markets had needed more bad news, the IMF stepped forwards and delivered another doom and gloom projection for the global economy.

On Wednesday, the IMF released its World Economic Outlook Update for June and it wasn’t pretty. Global growth is projected at -4.9% in 2020, downwardly revised from 3% back in April. The IMF also projected that the recovery would be slower, with global growth in 2021 projected at 5.4%

Perhaps more alarmingly is the IMF’s -8% global growth projection for advanced economies.

On the day, the DAX30 led the way down, sliding by 3.43%. The CAC40 and EuroStoxx600 weren’t far behind, however, with losses of 2.92% and 2.78% respectively.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Wednesday. Germany’s Ifo Business Climate Index figures for June were in focus in the early part of the European session.

According to the Ifo Business Survey, sentiment among German companies improved in June.

The Ifo Business Climate Index increased from 79.7 to 86.2 points in June, marking the strongest increase in survey history. Economists had forecast a rise to 87.0.

Companies’ assessments of their current situation also improved, while their expectations jumped as economic conditions improved.

Germany’s Ifo current assessment index increased from 78.9 to 81.3, with the expectations index jumping from 80.5 to 81.4. Economists had forecast the expectations index to rise to 87.0 and for the current assessment index to rise to 84.0.

Looking across the private sector:

  • In Manufacturing, the Business Climate Index increased from -25.8 to -11.5, with the Services Index rising from -21 to -6.
  • An improvement in the manufacturing Index was due to a surge in the manufacturing expectations index. For the services sector, both expectations and the current situation saw a marked improvement.
  • Trade also reported an improvement, with the Business Climate Index increasing from -30.5 to -14.2. While indicators of the current situation and of expectations improved, many traders still expect disappointing business development.

From the U.S

There were no material stats from the U.S to provide the European majors with direction, leaving Trump and COVID-19 in the driving seat.

The Market Movers

For the DAX: It was a particularly bearish day for the auto sector on Wednesday. Volkswagen slid by 4.05%, with BMW down by 4.03%. Continental and Daimler saw even heavier losses of 4.94% and 5.52% respectively.

It was also a bearish day for the banks, with Deutsche Bank and Commerzbank sliding by 5.21% and by 6.01% respectively.

Recently departed Deutsche Lufthansa bucked the trend, however, rallying by 13.35%.

Yet again, the story of the day was WIRECARD AG, which slumped by 30.18%.

From the CAC, it was a day in the deep red for the banks. Soc Gen slid by 4.55%. BNP Paribas and Credit Agricole saw losses of 4.96% and 4.33% respectively.

The French auto sector also tumbled, with Peugeot and Renault falling by 5.75% and 6.48% respectively.

Things were no better for Air France-KLM and Airbus SE, which slid by 3.88% and by 5.68% respectively.

On the VIX Index

It was back into the green for the VIX, after 2 consecutive days in the red. On Wednesday, the VIX rose by 7.87%. Reversing a 1.26% fall from Tuesday, the VIX ended the day at 33.84.

A bearish day for the U.S equity markets delivered the upside as concerns over a spike in new COVID-19 numbers spooked investors.

The S&P500 and Dow slid by 2.59% and by 2.72% respectively, with the NASDAQ falling by 2.19%.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Key stats include Germany’s GfK consumer climate figures for July.

Following better than expected PMIs and business sentiment, a pickup in consumer confidence would be another major boost.

While manufacturing sector activity is key for Germany, a consumer-driven service sector recovery remains key to the Eurozone’s economic recovery.

From the U.S

It’s a busier day ahead, with May’s core durable goods orders and the weekly jobless claims in focus.

While survey-based numbers from earlier in the week were positive, the markets will want to see a pullback in the weekly claims. A rise in core durable goods orders would also provide support to riskier assets.

We would expect finalized 1st quarter GDP numbers and trade data for May to have a muted impact on the Dollar.

Away from the stats, COVID-19 updates and chatter from the Oval Office will also have influence. Threats of tariffs on France, Germany, and Spain and Wednesday’s COVID-19 numbers will keep the markets on a cautious footing.

The Latest Coronavirus Figures

On Wednesday, the number of new coronavirus cases rose by 174,860 to 9,504,264. On Tuesday, the number of new cases had risen by 158,646. The daily increase was higher than Tuesday’s rise and 125,202 new cases from the previous Wednesday.

Germany, Italy, and Spain reported 1,463 new cases on Wednesday, which was up from 952 new cases on Tuesday. On the previous Wednesday, just 2,480 new cases had been reported.

From the U.S, the total number of cases rose by 38,253 to 2,459,173 on Wednesday. On Tuesday, the total number of cases had risen by 34,399. On Wednesday, 17th June, a total of 23,628 new cases had been reported.

The Futures

In the futures markets, at the time of writing, the DAX was up by 81 points, with the Dow up by 34 points.

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

This article was originally posted on FX Empire

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