The European market (Stoxx-600) closed around 359.92 Monday, edged up +0.06% on higher USD and US-China trade truce optimism, while dragged by banks and a slump in oil. The US dollar index (DXY) surged +0.30%, while EURUSD and GBPUSD slips, boosted the export-heavy European stocks to some extent despite lingering Brexit drama.
Banks, which were already under pressure, further extended its slump on a subdued report card from Julius Baer. For European banks, consistent lower Bund yields are negative for their business/lending model due to lingering dovish monetary policy from the ECB coupled with increasing stressed assets (NPA/NPL) as the Eurozone economy is slowing down considerably amid US-China trade war and EU political jitters. Spanish lenders Sabadell and Caixabank continued their Friday slump on terrible report card coupled with analysts’ downgrade.
Elsewhere, the German payment merchant Wirecard bounced back after denial of a reported fraud at its Singapore office as its law firm found no conclusive evidence of any such criminal misconduct. Germany’s DAX-30 ticked down -0.04% to close around 11176.58 and made a session low-high of 11100.34-11209.31, in a day of holiday-thinned rangebound trade as China is closed for the week. DAX-30 was helped by techs, software, pharmaceuticals & healthcare, and financials, while dragged by basic resources, telecom, automobiles, and utilities.
France’s CAC-40 slumped -0.38% to close around 5000.19 and made a session low-high of 4970.70-5019.40 in a day of rangebound trading. France was dragged by techs, healthcare, and financials, while helped by Industrials like Dassault Systems.
Italy’s FTSE MIB-40 edged up +0.15% to close around 19605.60 and made a session low-high of 19494.42-19660.43 in a day of moderate volatility, dragged by banks & financials.
Spain’s IBEX-35 slumped -0.49% to close around 8975.20 and was dragged by banks & financials, real estate, building & construction, and consumer goods, while helped by selected utilities to some extent.
The UK’s FTSE-100 inched up +0.20% to close around 7034.13 and made a session low-high of 7002.42-7046.58 in a day of rangebound trading. The FTSE-100 was helped by exporters/MNCs to some extent on volatile and lower GBP, selected energies (higher oil earlier) and consumer staples, while dragged by miners (copper fell early on China slowdown concern) and airlines (subdued report card from Ryanair).
The GBP was higher in the early EU session on reports that the EU imports to be waved through UK customs under no-deal Brexit (goods shipped to Britain from the European Union could be waved through without checks in the event of a "no-deal" Brexit). But eventually, GBP slips on the EU’s consistent stances that although they are open to renegotiating the political declaration (legally non-binding), the Irish backstop will not change under any circumstances.
Meanwhile, a UK MP, Trimble has termed the Irish border backstop as “illegal” under the Good Friday Agreement (GFA) and plans to take the British government to court over the Brexit deal, claiming such backstops contravenes the GFA between the UK, N-Ireland, and Ireland. It now almost clear that Theresa May does not have any concrete Brexit plan/strategies despite just 52-days in hand for the Brexit moment of Truth and 10-days for another “meaningful vote” in the UK Parliament.
In any way, the British business is suffering an irreparable loss of confidence as a result of this lingering Brexit uncertainty. The UK Business Secretary Clark reportedly urged PM May to rule out a no-deal Brexit and told PM May that Nissan’s decision to cancel production of a new model in its Sunderland factory was a warning sign of what could occur to the UK car industry in the event of failing to reach an agreement. Clark said: “Parliament has a responsibility to come to a decision. My view is that all of the information that is necessary to make a decision can be there by the middle of February and I think we should make that decision”.
Theresa May’s repeated pledge that the UK will leave the EU on March 29 means any request by her for an Article 50 extension would be humiliating. And even if May asks for an extension it is not clear that the EU will accept it. Some EU diplomats are suggesting that any extension needs to be for at least a year to allow the British to have a proper rethink of their approach. This means there is a risk of a disagreement about the length of the extension of Article-50 the UK wants and the one the EU will offer, which could lead a no deal hard Brexit by default.
Europe inched up Friday on mixed earnings, US-China trade truce optimism and positive cues from the Wall Street after Goldilocks US jobs data:
The European market (Stoxx-600) closed around 359.71 Friday, inched up +0.29% on mixed earnings, US-China trade truce optimism and positive cues from the Wall Street following another Goldilocks US NFP job report. The market sentiment was also boosted by hopes of US-China trade truce and Chinese stimulus as China’s Caixin- private (MSME) manufacturing PMI plunged further into contraction to 48.3 from prior 49.7, lower than the expectations of 49.5.
But the European market was also dragged by subdued PMI data from Italy and some other Eurozone areas, banks & financials amid mixed report card, NPA pressure from various Spanish lenders and Deutsche Bank (DE:DBKGn) saga, while helped by trade sensitive automobiles and also energies (higher oil).
Germany’s Wirecard plummeted on a report of suspected fraud, Electrolux and JCDecaux soared on an upbeat report card. ThyssenKrupp, Novo Nordisk (CO:NOVOb) jumped on strong guidance. Deutsche Bank, which was already under pressure on government forced merger talk with Commerzbank (DE:CBKG), extended its slump on subdued earnings, while another fraud accused Danske Bank jumped on capex plan to prevent further money laundering. Germany’s DAX-30 edged up +0.07%, helped by basic resources, foods & beverages, construction, and automobiles, while dragged by techs, consumers & cyclical and banks & finances.
Italy was under stress on subdued manufacturing PMI, the concern of GDP, which is already under a technical recession and lingering worries of fiscal discipline. Spain was also dragged by banks after terrible report card from Caixabank and TSB, the UK subsidiary of Spanish lender Banco Sabadell. Italy’s FTSE MIB-40 plunged -0.78%, while Spain’s IBEX-35 slid -0.41%.
The UK’s FTSE-100 jumped +0.74% on lower GBP, positive for exporters/MNCs coupled with China trade savvy miners as-well-as Asia focused banks and Burberry. Metro bank recovered on bargain hunting (after a 5-day plunge amid accounting error), while Talk Talk, a broadband service provider plunged on weak guidance. Energies helped on higher oil.
On US-China trade deal, talks ended in Washington with no deal (as expected), but the promise of a second meeting between Trump and Xi is getting traction for a final “comprehensive” US-China trade deal next month. The US and Chinese negotiators wrapped up two days of talks Thursday without a deal but with an optimistic outlook.
Trump said China has agreed to buy more American soybeans, but he expects to meet his Chinese counterpart Xi to seek agreement on other contentious issues. Trump said: "There are some points we don't agree to, but we will agree. I think when Xi and I meet, every point will be agreed to”. It now seems that in this “war of attrition” on Trade, Trump will blink first. Trump may travel to China for the big trade summit with Xi and a “comprehensive” trade deal.
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