Last week was overall negative for the European stock markets, with nearly all major indices going down. Thus, UK's FTSE 100 lost 0.78% over the week, and was trading at 7681.07 by the end of the trading session Friday. France's major CAC 40 was also in the red losing 0.42% and declining to 5450.22.
Meanwhile, Germany's DAX was short just 0.03%, trading at 12,766.55 Friday evening. Still, the overall trend was negative, and this can be because of the manufacturing orders decline. As such, April manufacturing orders in Germany came 1% lower, while the analysts were expecting a 0.30% growth. With manufacturing orders going down for four months in a row, and the export data, another major indicator for German economy, falling 0.3% short, too, the negative trend can be clearly visible.
Two largest banks in both Germany and the EU, Deutsche Bank (DE:DBKGn) and Commerzbank (DE:CBKG), were in the red on Friday, too. The shares fell by 2.1% and 1.8%, respectively, as Deutsche Bank Chair Paul Achleitner mentioned the potential merger of the two banks that are in competition with one another. Meanwhile, Lloyds (LON:LLOY), a major bank in the UK, lost 1.20% in market cap because of Standard Life (LON:SLA) share selloff. The insurance company itself also lost in price, its shares declining by 3.6%.
Infineon Technologies AG (DE:IFXGn), the largest microchip producer in the EU, went up by 0.9% after good forecasts on the revenue and news on future massive investments in manufacturing. The analysts expect the revenue to grow by at least 10% next year, while before it was just 8%.
Siemens AG (DE:SIEGn) also managed to go up, by 0.3%. The German giant is merging with Alstom (PA:ALSO) SA, headquartered in France, with respect to railway machinery. Last week, the companies announced the merger would be done only in 6 months, as the European Commission takes a lot of time to review it. Alstom SA (PA:ALSO) shares also increased (by 0.7%) after this news came in.
Meanwhile, IBEX 35 in Spain lost 0.04% and is trading at 9746.30. Italian FTSE MIB was not an exception either, losing 2.97% over the week and reaching 21,355.98.
The lower chamber of the Spanish parliament issued a vote of non-confidence to the Prime Minister Mariano Rajoy, who stepped down shortly after. This political crisis is a menace for the business and the Spanish economy that has been growing lately. As such, IBEX grew by 1.52% last week to reach 9914.40, but the political factors are very likely to get the index down, preventing it from growing more than 1% within the coming weeks.
In Italy, the markets are heavily influenced by the budget plan uncertainty, as the new government is being formed. The fiscal situation and policy in the country may become much worse at any time. FTSE MIB added 0.35% to its value, reaching 22,119.76, but, as in Spain, it may well reverse in the nearest future. Within the next two weeks, it is likely to trade between 22,150 and 22,090.
The major reason behind the selloff in the EU markets is the tense situation and investor sentiment ahead of the G7 summit in Canada. The relations between the EU and the US have very much worsened lately, and this did influence the local stock market. Meanwhile, Trump's hawkish tone of voice makes it much more difficult for the parties to reach an agreement. The EU governments are waiting for the White House leader to 'reload' the relations between the two parties and come to terms regarding economic and trade issues. The French President Emmanuel Macron said he would not sign the G7 agreement in case no agreement between the US and the EU had been achieved. Meanwhile, Donald Trump accused the EU and Canada of 'creating barriers' against the US.
Such negative news made the euro fall against the USD by 0.7%. The common currency is now trading at 1.17821. In the coming two weeks, while the German index is likely to enter the correction phase and reach 12,800, the euro may then continue falling against the USD by 0.5% to 1.2%. Donald Trump's policy looks quite consistent, which leaves a lot of room for the EUR to follow the negative scenario. As for the EU stock benchmarks, they may continue falling across the board, as Trump's policy still has some negative influence on the European markets, too, despite the overall positive tone of the final communique.
Iván Marchena, Libertex Analyst