European Banks Drive Stocks Lower

Daily Analysis - 09/02/2016

European Markets Led Lower By Banking Sector

Ahead of growth results to be reported by the European Statistics Office on Friday, European stocks dove to lows not seen since October 2014. With the European Commission minimizing Euro Area growth expectations during the prior week alongside hints of more stimulus from the European Central Bank to come in March, these actions mark a strong reflection of rising global risks.

Canadian Building Permits Skyrocket

Data from Statistics Canada reported a higher than expected figure for building permits during the month of December. Building permits soared by 11.30%, exceeding forecasts of 5.60% by a wide margin after November’s decline of -19.90%. Residential permits climbed by 16.30%, mostly pushed by multi-family homes and condos jumping by 39.10%. Single-family homes reported a small contraction of -0.10%. According to the statistics office, all regions of the country registered growth with Alberta recording the biggest gains of 26% despite being hit by the ongoing softness in the oil patch. The Bank of Canada opted to leave monetary policy unchanged during their first meeting of the year in January, leaving rates at 0.50%, keeping borrowing costs accommodative for home buyers. Following the building permits figure, the Canadian dollar gained further versus the US dollar, with the USDCAD pair dropping to 1.3936.

European Stocks At 15-Month Lows

Concerns about the state of the European banking sector sent stocks across the region tumbling, continuing momentum from the prior week with downside most acutely felt in the German DAX and the French CAC, reflecting growing concerns about the pace of global economic expansion. The DAX 30 dropped to lows of 8915.00 with the CAC 40 echoing the decline, tumbling to 4038.50. A number of factors contributed to the decline in investor sentiment, including lackluster macroeconomic data from the US economy, rising volatility in Chinese financial markets, and the persistent decline in energy prices. Aside from external conditions, banking was the worst performing sector as fears about the amount of leverage and derivatives exposure at major European banks is scaring off investors. Moreover, Sentix Investor Confidence declined to 6.0 for February, the lowest print in more than a year after missing both estimates and previous survey data of 7.6 and 9.6 respectively.

Spanish Industrial Production Decelerates

Industrial production in Spain expanded at a slower rate in December according to results released by the Spanish National Statistical Institute. Industrial output rose by 3.70% on annualized basis after increasing by a revised 4.30% in the previous month while missing estimates of 4.10%. The growth was mainly attributed to ambitious gains in equipment goods and intermediate goods production which improved by 7.70% and 6.60% correspondingly. Nevertheless, a -3.50% decline in energy production dragged on the figure. Over the whole year, Europe’s fourth biggest economy reported 3.20% growth in industrial production compared to 2014 with capital goods and durable consumer goods aiding the push. As global demand continues to ebb, the European Central Bank is preparing for further stimulus after hints from European Central Bank President Mario Draghi in order to help spur demand and push inflation back towards 2.00%.

Turkish Industrial Production Climbs

Turkish industrial production gained for an 11^thconsecutive month according to recently released data for December showing 4.50% expansion. The value surpassed expectations of 3.60% as well as the prior month’s annual value of 3.50%. As per the report, the Turkish Statistical Institute figures showed strong momentum in manufacturing and utilities which rose by 4.40% and 7.70% respectively whereas quarrying and mining both dropped by -2.10%. The continued slide in commodity prices has been mirrored by mining companies which have decided to cut production and slash costs due amid tumbling revenues and weak profits. The softness in the Turkish Lira has made exports more competitive on a comparable basis, making them cheaper from a relative value perspective and helping boost vehicle, machinery, iron and steel production. During the announcement the Turkish Lira continued to lose ground versus the US dollar, with USDTRY reaching 2.9237.