European Equity Benchmarks Close Mixed; Eurozone Optimism Falls to Lowest Level in Nearly Six Years

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The broad-based major European indices closed mixed in Tuesday trading as the London and Paris markets ended the day higher, while the Frankfurt exchange moved lower.

In economic news, worldwide confidence in the outlook for business activity in the coming year has fallen further in 2019, according to information provider IHS Markit, which said February data indicate that “worsening sentiment in developed markets underpins the gloomiest global picture for almost two-and-a-half years.”

The net balance of global firms predicting output growth in the coming 12-month period is the lowest seen since October 2016.

Eurozone optimism dropped to its lowest in almost six years during February, and in the manufacturing sector, output expectations have slid to its lowest since October 2012, while sentiment in the service economy is the weakest since October 2014. At the composite level, all indicators have fallen, signaling falling confidence for profits, hiring and capex, as well as downward revisions to inflation expectations

In the UK, the latest IHS Markit business outlook survey shows that private sector firms are the least upbeat about their prospects for growth since the composite index was first compiled in October 2009. At +28%, the net balance of firms expecting an increase in business activity during the next 12 months is down from +32% in October 2018, and the lowest in more than nine years.

The latest survey indicates that UK growth projections are much weaker than at the same time in 2018, and lower confidence has been recorded across the euro area as well.

In Germany, businesses’ growth expectations are at their lowest in over six years due to growing anxieties toward a slowing global economy and the outcome of Brexit, as well as lingering concerns about the car industry and the potential escalation of trade wars. Although the number of firms expecting a rise in business activity over the next 12 months is greater than those predicting a fall, the net balance of +20% is the lowest seen since late-2012. It is also below both the eurozone (+25%) and global (+24%) averages.

Meanwhile confidence levels were stable among French private sector firms from October, according to IHS Markit, which said February’s results show unchanged optimism toward the 12-month outlook for both business activity and employment. However, lower net balances of firms expect increases in profit and capital expenditure, and inflation expectations will be softer. A net balance of +29% of panelists predict a rise in business activity over the next 12 months, in line with the figure for October, and optimism toward future business activity remains above the global (+24%) and eurozone (+25%) averages.

The IHS Markit Business Outlook survey showed a slight improvement in confidence among Spanish companies compared with last October, however, optimism regarding the future remained among the lowest in the past six years. Political and economic uncertainties continue to weigh on confidence, and companies are concerned about recent domestic and wider European political developments, the US-China trade position, and Brexit.

And in Italy, business confidence among Italian private sector companies has deteriorated at the start of 2019, according to the latest IHS Markit Outlook Survey. Optimism regarding future activity, profits and employment have all declined significantly from the previous survey last October. The net balance of companies forecasting an increase in activity over the coming 12 months is down to +23%, from +28%, which is the lowest since October 2012. Additionally, Italian business activity expectations are lower than both the eurozone and global readings. The downturn largely reflects weaker confidence across manufacturing, where optimism for activity is the lowest since October 2012.

In equities, property developers buoyed the FTSE in London as Taylor Wimpey, Persimmon, and Berkeley Group Holdings rose 2.2%, 1.9%, and 1.4% respectively. Mining company Evraz, and asset manager Schroders led all gainers climbing 2.7% and 2.5% respectively, while energy services firm John Wood Group and airline operator easyJet were up 2.1% and 1.9%. Wealth management firm St James’s Place increased 1.8%, while media company ITV, and mining company Fresnillo each closed 1.6% higher.

In Frankfurt, internet company Wirecard led the DAX lower, falling 4.7%, followed by Deutsche Bank, and pharmaceutical firm Bayer, which lost 2.5% and 2% respectively. Automaker Volkswagen was off 1.8%, while footwear and apparel company Adidas, and adhesives manufacturer Covestro each closed 1.3% lower.

And in Paris, construction materials supplier Saint Gobain, and steel and mining company ArcelorMittal helped nudge the CAC into positive territory, rising 1.7% and 1.5% respectively, followed by plane maker Airbus, which climbed 1.4%. Hotel operator Accor, and luxury goods company Louis Vuitton gained 0.9% and 0.7% respectively, while water and waste management firm Veolia Environnement, and pharmaceutical company Sanofi each closed 0.6% higher.

The FTSE rose 0.29%, the DAX fell 0.17%, and the CAC-40 gained 0.08%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Referenced Symbols: DAX

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