European Equities: Geopolitics to Drive the Majors

Economic Calendar:Thursday, 26th September

• GfK German Consumer Climate (Oct)

• ECB Economic Bulletin

Friday, 27th September

• French Consumer Spending (MoM) (Aug)

The Majors

The European majors struggled once more on Tuesday, with the DAX30 leading the way, falling by 0.29%. It was a more modest 0.04% loss for the CAC40, while the EuroStoxx600 eked out a 0.01% gain.

Gains from most of the day reversed late in the European session as the markets considered economic data and chatter from the UN General Assembly.

On the geopolitical front, news had hit the wires that trade talks would resume in 2-weeks. Following last Fridays comments, the news had supported the majors early on.

From the General Assembly, however, Trump‘s address spooked the markets by stating that he wouldn’t accept a bad deal with China. The U.S president also attacked China for its unfair trade practices. Following last Fridays comments, Trump also reiterated that he was in no hurry to bring an end to the extended trade war.

For the DAX30, heavier losses came, not just from disappointing stats, but also news of Volkswagen executives being charged with market manipulation.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Tuesday. Economic data included Germanys Ifo Business Climate Index, Ifo Current Assessment and Business Expectation figures for September.

According to the September Ifo Institute Survey,

• The Ifo Business Climate Index rose from 94.3 to 94.6 in September.

• A better assessment of the current situation provided support in September, the index rising from 97.4 to 98.5.

• In contrast, however, was a further decline in the Business Expectations Index, which fell from 91.3 to 90.8. It was a 4th consecutive monthly decline in the Business Expectations Index.

In the manufacturing sector, the business climate index fell from -6.0 to -6.4.

• Firms were more negative towards ongoing business and more pessimistic towards the coming months.

The services sector business climate index rose from 13.0 to 16.6.

• Both sentiments towards current conditions and towards the next few months provided support.

For trade, the Trade Ifo business climate index fell from -2.4 to -3.7.

• Traders viewed their current situation more negatively and were also more pessimistic towards the next few months.

From the U.S, the CB Consumer Confidence Index slid from a revised 134.2 to 125.1, contributing to the late reversal in Europe. Economists had forecast a decline to 134.1.

The Market Movers

From the DAX, it was another bearish day for the auto sector on Tuesday. Volkswagen and Daimlerled the way down with losses of 3.30% and 2.10% respectively. BMWand Continentalwerent with losses of 0.91% and 1.88% respectively.

Things were no better for the banks. Deutsche Bankslid by 3.11%, while Commerzbankslipped by 0.94% following a 7.46% slide on Monday.

From the CAC, it was also bearish for the banks. Soc Genand Credit Agricoleled the way down, with losses of 1.65% and 1.44% respectively. BNP Paribassaw a more modest 0.62% loss on the day. The auto sector also closed out the day in the red. Renaultfell by 1.61%, whilst Peugeotslipped by 0.52%.

On the VIX Index

The VIX Index saw its 3rd day in the green in 16 days, with a 14.8% gain.

On the day, market jitters spiked in response to a number of factors that included Trumps address to the UN Assembly and talks of impeaching the U.S President.

During Trumps address, not only were the negative comments towards trade, but also towards social media that led to a material slide in FAANG stocks.

Disappointing consumer confidence figures added to negative sentiment that led to a slide in U.S Treasury yields.

The Day Ahead

Its a quiet day ahead on the Eurozone economic calendar. There are no material stats due out of the Eurozone to provide the majors with direction on the day.

With economic data out of the U.S limited to August housing sector figures, geopolitics will be the key driver on the day.

High-level U.S – China trade negotiations are set to resume next month, so we can expect trade war chatter to build. Theres also Brexit, with the fallout from the Supreme Court ruling on Tuesday likely to influence risk sentiment.

On Tuesday, the Supreme Court unanimously ruled that the suspension of Parliament was unlawful… Another loss for the British PM who looks to be heading for the exit door with less than 30 days remaining until Brexit.

In case trade war chatter and Brexit is not enough, theres also the UN General Assembly to factor in. Expect plenty of chatter from NYC, with Iranian President Rouhani scheduled to address the Assembly later today.

Late in the U.S session on Tuesday, democratic talk of impeaching the U.S president added to the negative mood, which could also test the majors early on.

In the futures markets, at the time of writing, the DAX was down by 42 points, while the Dow Mini was up by 35 points.