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European Equities: The ECB and the U.S Weekly Jobless Claims in the Spotlight

Economic Calendar:

Thursday, 4th June

Eurozone Retail Sales (MoM) (Apr)

ECB Monetary Policy Decision (Jun)

ECB Press Conference

Friday, 5th June

German Factory Orders (MoM) (Apr)

The Majors

It was a 3rd consecutive day in the green for the European majors on Wednesday, with the DAX30 rallying by 3.88% to lead the way.

The CAC40 and EuroStoxx600 weren’t far behind, with gains of 3.36% and 2.54% respectively.

Mid-week, the momentum rally continued as market sentiment towards a speedier economic recovery fuelled demand for riskier assets.

There were no curveballs for the markets to fret over, as service sector PMIs supported the market optimism.

The Stats

It was a busy day on the Eurozone economic calendar on Wednesday. May’s services PMIs from Italy and Spain and unemployment numbers from Germany were in focus.

Finalized services and Composite PMIs from France, Germany, and the Eurozone also drew interest.

The PMIs

Spain’s services PMI rose from 7.1 to 27.9 in May, which was above a forecast of 25.0. In April, the PMI had tumbled from 23.0 to 7.1.

Things were marginally better from Italy, with the services PMI rising from 10.8 to 28.9. In April, the PMI had fallen from 17.4 to 10.8. Economists had forecast a rise to 26.5.

From France and Germany, the May PMIs came in at 31.1 and 32.6. These are up from 10.2 and 16.2 in April and May prelims.

In May, the Eurozone’s finalized services PMI came in at 30.5, up from a prelim 28.7 and April 12.0. In April, the Services PMI had fallen from 26.4 to 12.0.

The Eurozone’s Composite PMI came in at 31.9 in May, which was up from an April 13.6 and May prelim 30.5. In April, the PMI had fallen from 29.7 to 13.6.

According to the Eurozone’s finalized Markit Survey,

  • Private sector activity continued to contract at a marked pace in May.

  • Both the manufacturing and the services sectors suffered noticeable contractions in output.

  • At the country level, there was a broad-based improvement in the composite PMIs.

  • Italy was the best-performing, followed by Germany and then France. Spain remained the weakest performing member state.

  • While at a slower pace, incoming new business continued to fall at a marked pace.

  • Excess capacity led to a sharp fall in backlogs, with the net fall in employment severe and amongst the greatest on record.

  • Confidence remained negative, whilst up from March’s series low.

Germany’s unemployment rate increased from 5.8% to 6.3%. Economists had forecast a rise to 6.2%. Unemployment rose by 238k, following a 373k jump in April. Economists had forecast a 200k rise.

From the U.S

It was also a busy day in the U.S, with the ADP nonfarm employment change and ISM Non-Manufacturing PMI the key drivers.

In May, employment fell by 2.76m, following a 19.557m tumble in April. Economists had forecast a 9m fall.

The ISM Non-Manufacturing PMI rose from 41.8 to 45.4. According to the ISM survey,

  • The New Orders Index rose by 9 percentage points to 41.9%, with the Business Activity Index rising by 15 percentage points to 41.0%.

  • Labor market conditions remained dire, however, with the Employment Index rising by just 1.8 percentage points to 31.8%.

  • Just 4 non-manufacturing industries reported growth, with 14 reporting a decrease in May.

The Market Movers

For the DAX: It was another bullish day for the auto sector on Wednesday. Daimler rallied by 5.47% to lead the way, with BMW and Continental rising by 4.16% and 4.03% respectively. Volkswagen saw a more modest 2.56% gain on the day.

It was also a bullish day for the banks. Deutsche Bank rallied by 2.77%, with Commerzbank gaining 3.58% following Tuesday’s 7.83% breakout.

Deutsche Lufthansa recovered from Tuesday’s 2.41% loss, with a 5.58% gain on Wednesday.

From the CAC, bank stocks continued to move northwards on Wednesday. BNP Paribas and Soc Gen rallied by 4.84% and by 4.37% respectively, with Credit Agricole gaining by 3.46%.

The auto sector also saw green for a 3rd consecutive day, with Peugeot and Renault rallying by 5.95% and by 10.49% respectively.

Air France-KLM surged by 10.11%, with Airbus SE rallying by 7.39% off the back of a 7.17% rally on Tuesday.

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Wednesday. Following on from a 4.92% slide on Tuesday, the VIX fell by 4.40% to end the day at 25.66.

While economic data continued to reflect the impact of the coronavirus pandemic, employment and private sector PMIs continued to support the view that April was the bottom

This has been supported by the continued easing of lockdown measures and both monetary and fiscal stimulus.

The S&P500 rose by 1.36%, with the Dow and NASDAQ gaining 2.05% and 0.78% respectively.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. The Eurozone’s retail sales figures for April are due out.

We don’t expect the stats to have any influence, however, with the Eurozone having been in lockdown throughout the month.

The main event of the day is the ECB monetary policy decision and the press conference. Will ECB President Lagarde pour cold water on the market’s optimistic economic outlook? Few are expecting any further easing, but the promise of more may be good enough for the majors.

From the U.S, however, expect the weekly initial jobless claims to influence. Another 2m plus jump in weekly jobless claims may haunt the markets ahead of Friday’s labor market numbers.

On the geopolitical front, the markets will need to continue to monitor the news wires as well as the daily COVID-19 numbers.

The Latest Coronavirus Figures

On Wednesday, the number of new coronavirus cases rose by 121,534 to 6,592,445. On Tuesday, the number of new cases had risen by 112,694. The daily increase was higher than Tuesday’s rise and 110,221 new cases from the previous Wednesday.

France, Germany, Italy, and Spain reported 1,401 new cases on Wednesday, which was up from 938 new cases on Tuesday. On the previous Wednesday, 1,892 new cases had been reported. Significantly, all 4 member states reported more than 300 cases each for 1st time in 3-days.

From the U.S, the total number of cases rose by 21,763 to 1,901,428 on Wednesday. On Tuesday, the total number of cases had risen by 21,208. On Wednesday 27th May, a total of 20,392 new cases had been reported.

In the futures markets, at the time of writing, the DAX was up by 11.5 points, with the Dow up by 18 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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