European Equities: A Lack of Stats Leaves the ECB and Fiscal Policy in Focus

The Majors

It was another bullish day for the European majors on Wednesday, with the EuroStoxx600 rising by 1.36% to lead the way. The CAC40 and DAX30 weren’t far behind with gains of 1.33% and 1.19% respectively.

Support continued to kick on anticipation of both monetary and fiscal policy support to combat the effects of the coronavirus.

The upside was far from spectacular, however, as questions remain over whether monetary policy will be able to provide support.

The Stats

It was a busy day on the Eurozone economic calendar on Wednesday. Economic data included Service PMI numbers out of Italy and Spain and retail sales figures for Germany and the Eurozone.

There were also finalized service and composite PMI numbers out of France, Germany, and the Eurozone.

According to the February PMI surveys,

Spain: Service sector activity grew at a marginally slower pace, with the PMI falling from 52.3 to 52.1.

Italy: Activity picked up in the services sector, with the PMI rising from 51.4 to 52.1.

France: The finalized Services PMI was revised down from 52.6 to 52.5. In January, the PMI had stood at 51.1.

Germany: Service sector activity grew at a slower pace in February. The finalized PMI was revised down from 53.3 to 52.5. In January, the PMI had stood at 54.2.

The Eurozone’s Services PMI was revised down from 52.8 to 52.6. In January, the PMI had stood at 52.5. In spite of the downward revision, the finalized composite PMI held steady at a 6-month high 51.6, up from a January 51.3.

According to the February Composite Survey,

• Support came from a pickup in service sector activity and a weaker contraction in the manufacturing sector.
• Levels of new business increased for the 3^rd month in a row, though new export orders continued to contract.
• Staffing levels continued to rise, with a modest rate of increase unchanged from January.
• Backlogs of outstanding work fell for a 12^th consecutive month.
• Input prices were on the rise, driven by staffing costs in the services sector, while output costs saw a marginal increase.
• Optimism eased back from January’s 16-month high in February, with concerns over the coronavirus weighing.

At country level

• All member states saw expansion. Ireland comfortably topped the table with a 17-month high 56.7.
• Growth in France and Spain remained solid, as both composites hit 2-month highs.
• Weakness in the manufacturing sector, however, weighed on both Germany and Italy.
• Germany’s composite fell to a 2-month low 50.7, while Italy’s fell to a 4-month low 50.7.

Retail Sales

Out of Germany, retail sales rose by 0.9% in January, partially reversing a 2% slide in December. Economists had forecast a 1.0% increase.

Eurozone retail sales increased by 0.6% in January, partially reversing a 1.1% fall in December. Economists had forecast a 0.6% rise.

According to Eurostat,

• Automotive fuel sales increased by 1.9%, with sales for food, drinks, and tobacco (+0.7%) and non-food products (+0.4%) also on the rise.
• By member state, Slovenia (+5.6%) and Portugal (+4.2%) reported the largest increases in retail sales in January.
• Belgium (-2.4%), Ireland (-1.7%), and Malta (-0.7%) reported the largest declines in retail sales in the month.
• Year-on-year, retail sales increased by 1.7%.

From the U.S,

The market’s preferred ISM Non-Manufacturing PMI increased from 55.5 to 57.3, which provided support along with upbeat ADP Nonfarm Employment Change figures.

Earlier in the month, the prelim Markit Service PMI for February had come in at 49.4, causing a slide in the Dollar and shift in sentiment towards the U.S economy. The ISM figure, coupled with the FED emergency rate cut and fiscal support will provide some much-needed relief.

The Market Movers

For the DAX: it was a particularly bullish day for the auto sector. Daimler led the way, rallying by 5.72%. BMW and Volkswagen also found strong support, with the pair gaining 3.79% and 3.61% respectively. Continental saw a more modest 0.74% rise on the day.

It was a mixed day for the banks, however. Commerzbank fell by 1.50%, while Deutsche Bank rose by 1.47%.

Deutsche Lufthansa was on the move once more on Wednesday, rallying by 3.47%.

From the CAC, it was yet another bearish day for the banks. BNP Paribas fell by 1.31%, with Credit Agricole and Soc Gen seeing more modest losses of 0.98% and 0.21% respectively.

It was a bullish day for the auto sector, however, with Peugeot and Renault rising by 1.06% and 0.08% respectively.

Air France-KLM slid by 4.13%, however, reversing a 1.92% gain from Tuesday.

On the VIX Index

The VIX saw deep red on Wednesday, sliding by 13.12%. Reversing a 10.17% gain from Tuesday, the VIX ended the day at 32.0.

It was a big day for the U.S equity markets on Wednesday, as the bulls look to claw back last week’s losses.

A number of driving factors contributed to a breakout across the U.S equity markets, with the S&P500 rallying by 4.22% on the day.

Results from Super Tuesday and the Democratic race saw Biden take the limelight easing fears of Bernie Sanders taking the battle to Trump.

There was also a further reaction to the FED’s emergency rate cut and news of the House of Representatives approving an $8bn emergency package to battle the spread of the coronavirus.

Adding to the upside were the impressive ISM Non-Manufacturing PMIs and better than forecasted ADP Nonfarm Employment Change figures.

The Day Ahead

It’s a particularly quiet day ahead on the Eurozone economic calendar, with no material stats due out of the Eurozone.

The lack of stats will leave the market focus on the coronavirus, the ECB and Eurozone member states.

In the futures markets, at the time of writing, the DAX was up by 77.5 points, while the Dow was down by 170 points.