There were firm PMI releases across all major economies, which underpinned growth hopes, but European equities were hurt by higher bond yields and uncertainty ahead of the Italian referendum.
The DAX opened little changed after a slightly positive session in Asia with the stronger than expected official Chinese PMI data offering support.
The German manufacturing PMI index was revised marginally lower in the final November reading to 54.3 from 54.4, but still indicated a very solid rate of expansion and there was no major market reaction as the DAX index hit resistance above 10,600.
Trends in oil prices were a net positive for the market, but there were also concerns that a sharp spike in energy prices could increase underlying inflation pressures. Higher inflation expectations would, in turn, increase the risk that the ECB would draw back from a very aggressive monetary policy more quickly than expected, which undermined equity markets.
There were further concerns surrounding the Italian Constitutional Reform referendum this weekend given fears that the government will lose the vote. This would trigger major uncertainty surrounding Prime Minister Renzi’s future and undermine wider confidence in the Eurozone.
US jobless claims were higher than expected at 268,000 in the latest week from 251,000 previously, but the ISM manufacturing index was higher than expected at 53.2 for November from 51.9 previously, which suggested solid underlying demand.
US yields continued to move higher with 10-year rates moving to near 2.45%, which tended to drag equity markets lower on both sides of the Atlantic with a sharp increase in European bond yields.
As bond yields continued to move higher, there was further net selling pressure on German equities. After a brief rally, the DAX continued to lose ground in the last two hours of trading.
At the close, there was a decline of 106.25 points and 1.00% at 10,534.05.
There is likely to be further underlying caution surrounding the Italian referendum on Friday, which will tend to unsettle equity markets and there is also the risk of choppy trading surrounding the US employment data.
DAX 30 4H Chart
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