European Equities: A Dark Day Ahead as Riskier Assets Take a Beating This Morning

Economic Calendar:

Monday, 9^th March

German Industrial Production (MoM) (Jan)

German Trade Balance (Jan)

Eurozone Sentix Investor Confidence (Mar)

Tuesday, 10^th March

French Non-Farm Payrolls (QoQ) (Q4)

Eurozone GDP (QoQ) (Q4) 3rd Estimate

Eurozone GDP (YoY) (Q4) 3rd Estimate

Thursday, 11^th March

Eurozone Industrial Production (MoM) (Jan)

Deposit Facility Rate (Mar)

ECB Interest Rate Decision (Mar)

ECB Press Conference

Friday, 12^th March

German CPI (MoM) (Feb) Final

French CPI (MoM) (Feb) Final

French HICP (MoM) (Feb) Final

Spanish CPI (YoY) (Feb) Final

Spanish HICP (YoY) (Feb) Final

The Majors

It was a 2^nd consecutive day in the red for the European majors on Friday, with the bearish end leaving the boerses in the red for the week.

The CAC40 slid by 4.14% to lead the way down, with the DAX30 and EuroStoxx600 falling by 3.37% and by 3.67%.

Economic data took a back seat once more, with impressive numbers out of Germany and the U.S failing to change the narrative.

The continued spread of the coronavirus did the damage at the end of the week, with the markets perhaps realizing that interest rate cuts alone are likely to do very little…

Oil prices also took a hammering as the Russia-OPEC alliance came under pressure, the 2-sides unable to reach a consensus on output.

U.S 10-year Treasury yields slid to below 0.7% for the 1^st time in history.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Friday. German factory orders were in focus going into the European open.

According to Destatis,

• New orders in manufacturing jumped by 5.5%, month-on-month, in January, reversing a 2.1% slide from December.
• The increase was attributed to major orders, and air and spacecraft and machinery and equipment orders in particular.
• Excluding major orders, factory orders were up by 2.3%, which was still positive.
• Domestic orders decreased by 1.3%, while foreign orders surged by 10.5%, with new orders from the Euro area jumping by 15.1%.
• New orders from other countries increased by 7.8%, month-on-month.
• Year-on-year, factory orders were down by 1.4%, however, following an 8.9% slide in December.

From the U.S,

A fall in the unemployment rate and jump in nonfarm payrolls were also brushed aside. Following a 273k jump in nonfarm payrolls, the unemployment rate fell to 3.5% in February.

While wage growth eased back to 3% year-on-year, wages grew by 0.3%, month-on-month, which was a pickup from 0.2% from January.

It had been a while since the markets last brushed aside nonfarm, a reflection of the markets’ sentiment towards the virus.

The Market Movers

For the DAX: it was a mixed day for the auto sector. Continental led the way, rallying by 3.02%, with BMW gaining 0.21%. Daimler and Volkswagen saw red, however, with losses of 2.90% and 1.24% respectively

Tumbling government bond yields stemming from the expectation of major support from central banks continued to weigh on the banking sector.

Commerzbank slid by 7.18%, with Deutsche Bank falling by 2.79%.

Deutsche Lufthansa found much-needed support, rising by 2.13%.

From the CAC, it was another particularly bearish day for the banks. BNP Paribas slid by 4.94%, with Credit Agricole and Soc Gen ending the day with losses of 3.75% and 6.08% respectively.

It was a mixed day for the auto sector, however. While Peugeot fell by 3.24%, Renault rose by 1.01%.

Air France-KLM found support, with a 3.33% gain.

On the VIX Index

It was a 2^nd consecutive day in the green for the VIX, which rose by 5.86% on Friday. Following on from a 23.85% jump from Thursday, the VIX ended the day at 41.9.

Negative sentiment towards the continued spread of the coronavirus weighed on risk appetite at the end of the week.

In spite of positive economic data out of the U.S, the S&P500 fell by 1.71% on the day, with U.S Treasury yields tumbling.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. German industrial production and trade figures for January are due out going into the European open.

Later in the session, the Eurozone’s investor confidence figures are also due out.

We will expect the numbers to have a muted impact on the majors, however, as risk aversion hits new levels early this morning.

There’s very little interest in the Eurozone’s January numbers that will not reflect the effects of the coronavirus on the region’s economy.

From the weekend, trade data out of China was yet another reminder of just how dire the economic situation is… Exports tumbled by 17.2%, leading to a US$ defect of $7.09bn. In January, China had a trade surplus of $47.21bn. The last time that China had a Dollar trade deficit was back in March 2018.

In the futures markets, at the time of writing, the DAX was down by 624 points, with the Dow down by a whopping 1,199 points.

Central banks and governments are going to need to step up, with even Lagarde now under pressure to deliver.