The agreement reached by Angela Merkel and Interior Minister Horst Seehofer to resolve the political crisis around migration has boosted European markets and especially the German stock market.
On the macroeconomic front in Germany, the PMI index for the services sector rose in June to 54.10, the highest level in the last 4 months. In the Euro Zone, the PMI economic activity index rose from 54.10 in May to 54.9 in June.
Reuters reported that the US ambassador to Germany would have informed those in charge of some of the major automakers such as BMW, Daimler and Volkswagen that Donald Trump could abandon the threats issued last month if the EU eliminated taxes on imported cars from the USA. Remember that the US president threatened last month to impose a 20% import tariff on all vehicles manufactured in the EU.
The employment report showed that the US economy created 213,000 jobs in June, up from 195,000 expected by economists. However, the unemployment rate worsened from 3.80% to 4%, compared to the maintenance estimates for the previous month. In relation to average hourly wages, there was an annual increase of 2.70%, lower than the expected 2.80%.
European markets ended today’s session on positive territory. Concerns about trade tensions between the US and China softened slightly, allowing raw material producers to overperformance. In London, the market traded higher (0.95%) following the Brexit Minister’s resignation request, David Davis, and Foreign Minister Boris Johnson.
European stock markets closed higher as investors turned their attention to the upcoming earnings season, relegating the last political and trade tensions to second place. In sectoral terms, oil companies led the gains, boosted by rising commodity prices. Also on the rise were industrial and technological companies. In London, Marks & Spencer shares fell 0.61% on the day the retailer reported its results.
Most of the Asian stock markets ended low, with the Chinese market leading the losses. At issue was the news that the United States has produced an additional list of imported Chinese products amounting to USD 200 000 per year and threatened to impose tariffs already in September. In the Japanese market, losses were led by the sectors most sensitive to global trade issues, such as the automobile, while in China the most affected companies were the producers of raw materials.
European markets ended up higher, recovering from the losses recorded in the previous session. The media industry was among the best performers after the British government clarified the conditions for the acquisition of Sky's pay-TV platform by Twenty-First Century Fox. The oil sector ended virtually unchanged on a day when the price of oil fell again in international markets. Pharmaceuticals led the gains, with one of the German companies Gerresheimer posting an increase of more than 8% after announcing an extension of its business model and raising its growth forecasts.
European indices are in consolidation, favored by the performance of the US market and the outlook for the new Earnings Season that starts today in the US, with the disclosure of the figures of three of the largest financial institutions. Meanwhile, investors continue to monitor developments in trade tensions between the US and China.
In the pre-opening of the session, European indices retreated slightly, with investors focused toward company results on both sides of the Atlantic and the meeting between Donald Trump and Vladimir Putin after the US President met last week with Theresa May, British Prime Minister. Several economic studies indicate that the victory in a major football competition has a positive impact on the GDP (between 0.25% and 0.50%) of the winning country. This economic improvement has a positive effect on the stock market of the winning country, which tends to overperformance against the index of the other country finalist in the three months following the end of the competition. While recognizing that football events have a moderate and time-limited impact on stock markets, this type of study serves to confirm how much the emotions can determine the behavior of investors and economic agents. Thus, the French CAC40 index will be accompanied today in a more particular way.
European stock markets traded higher as investors digested the reported business results and monitored the words of the Fed President. In sectoral terms, the producers of raw materials stood out in the positive, while the telecommunications companies led the losses. The technology sector was conditioned by the results reported yesterday after the US closing, which disappointed the investors. In Frankfurt, shares of Thyssenkrupp rose 9.06% following news of the resignation of the company's chairman, as a result of pressure from shareholders. The European car industry has appreciated by about 0.80%. On the macroeconomic front, investor sentiment was influenced by the IMF's lowering of its growth forecasts for the United Kingdom and the Eurozone, warning that global trade tensions have worsened economic outlook.
As Powell’s testimony did not raise any fears or alarmism in stock markets, investors were able to focus on the earnings season, rewarding good results and penalizing companies that have deceased. The first group includes Johnson & Johnson, which not only reported numbers that beat analysts’ estimates but also proved confident for the future. Netflix represented the reverse of the medal. The company’s accounts disappointed the level of revenue and the number of subscribers, which led the respective stock to a decrease of 5.24%. According to Ritholtz Wealth Management, Amazon’s appreciation this year (57%) equals nearly 35% of S & P’s earnings, Netflix’s almost 100% rise is 21%, and Microsoft’s and Apple’s represent 27% of S & P’s earnings this year. The contribution of Google and Facebook is more modest (the rise of each title corresponds to 8% of the advance of the S&P). Thus, according to Ritholtz Wealth Management, FAANG accounts for almost all of the gains made by S&P this year. From this simple arithmetic emerges the crucial importance of the quarterly results of these companies.
In the pre-opening, the European indexes rehearsed in different directions. During today’s session, investors will continue to monitor business results posted on both sides of the Atlantic. In today’s session, the highlight will be the accounts published by SAP, Unilever and Anglo American, so that their sectors may be influenced by the numbers revealed. Meanwhile, Ryanair’s stocks could also be hampered by the news about the cancellation of about 600 flights next week, due to what is expected to be the biggest strike of its employees ever. At the same time, trade relations between the US and its main partners will continue to be a theme to follow. President Donald Trump said yesterday that the White House may be preparing a trade agreement with Mexico and Canada. On the other hand, White House adviser Larry Kudlow suggested that the European Union should propose a significant trade agreement with the US. Remember that the President of the European Commission, Jean-Claude Juncker, will visit the United States next week.
The European indices are trading in descending trajectory, after the performance of the American and Asian markets. Although the earnings season will begin to gain some measure in Europe, the main catalyst for the stock markets of the Old Continent will continue to be the performance of its American counterparts. In fact, the correlation between the S&P500 and the Eurostoxx50 has hit the highest level since 2016. This pattern has allowed investors to weigh less than the fact that profit estimates are only 6% in Europe compared to 21% in USA and to suspend in their minds some risks, such as the political uncertainties associated with the new Italian Government, as well as some governmental instability in Spain and Germany, as well as some uncertainties regarding the future of the ECB’s monetary policy.
The presentation of results will take on a larger dimension in the coming days (84 of the DJStoxx600 members will report their quarterly accounts). According to the latest estimates, company profits will have grown 8.20% in the second quarter of this year, compared to the same period of 2017. However, excluding the oil sector, the increase in profits will have been more contained (+ 3.10%). The increase in revenues is estimated to have been 5.20%. Once again, this variation is inflated by the accounts of the oil companies. If we exclude these companies, revenues will have risen by a mere 0.50%. So relevant or more than the results themselves, will be the considerations that CEOs of companies will make of the current tension between the US and its trading partners. The exposure to world trade in European companies is far superior to its American counterparts: more than half of its revenues are generated outside Europe compared to the 30% of revenues that US companies originate outside the United States.
European markets ended the day with significant gains. Contrary to what has been observed, today's session was essentially dominated by business themes. European bank stocks were boosted by the good results of UBS. The Swiss bank reported a 9% increase in its quarterly profits, which reached 1280 M. CHF, surpassing analysts' forecasts. Bank CEO Sergio Ermotti was confident that UBS will achieve its proposed goals for 2018. Google's good results have had a positive effect not only in the technology sector but also in the European market as a whole. European investors are well aware of the impact Google's price has on US indices and so indirectly on Europeans. Also to mention the good results of Peugeot, which catapulted the stock to the highs of the last 7 years. At the macroeconomic level, PMI indexes for manufacturing and services activity in Germany have easily outperformed economists' forecasts. With regard to the Eurozone as a whole, the reading on the PMI index of manufacturing activity hit the forecasts but the forecast for services fell a bit short.
European indices are presenting some losses. Given the uncertainty still prevailing at the current juncture, it is likely that some short-term investors will continue to realize some profit taking after the strong rise in yesterday’s session. The initial phase of the day should be marked by investors’ response to the various results released before the opening. Today begins the visit of the President of the European Commission Juncker to the USA, where he will meet with President Trump. The purpose of this visit is to normalize relations between the two sides of the Atlantic, recently shaken by President Trump’s accusations against the European Union regarding the tariffs it imposes on American products, the regulatory barriers it raises (like the recent Google fine) and to the default on financing Nato. JeanClaude Juncker was prone to an agreement, which would have as its starting point the tariffs on cars. However, the President of the European Commission has limited powers in this regard, as any agreement will have to be ratified by the various National Parliaments.
The European indices are presenting some gains, especially the DAX. The comforting signals given by the meeting between President Trump and the President of the European Commission Juncker should sketch the initial trend of today. The ECB meeting will divert investors’ attention from microeconomic issues (business results) to more macro issues (monetary policy). Today’s meeting will be used by the Central Bank to cement the message given at the June meeting. However, at the current stage the signs that the slowdown is over are still very timid and on them weighs the specter of a worldwide trade war. The issue of inflation should also be discussed at the press conference. The ECB has been confident that inflation will eventually move towards the 2%, which is the aim of this institution.
Regarding yesterday’s meeting between Donald Trump and Jean-Claude Juncker, the two leaders agreed to start negotiations immediately to reduce tariffs on goods such as medicines, chemicals and soy and completely eliminate tariffs on industrial products (excluding cars). This purpose is quite vague and sins for lack of detail but at least it demonstrates an intention. However, it is important to note that in May, too, the US and China reached a similar agreement before ending the talks in June. In short, more than an agreement, yesterday was celebrated an intention to reach an agreement. This intention has fragile foundations but may constitute a truce in that it was agreed to suspend the introduction of new tariffs while the negotiations last.
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