European Equities: A Week in Review – 08/11/19

The European majors found strong support as sentiment towards trade improved over the week. A late pullback limited the upside, however…
Bob Mason
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The Majors

It was yet another positive week for the European majors, with the CAC40 up by 2.20% to lead the way. The DAX30 wasn’t far behind, rising by 2.06%, while Eurostoxx600 saw a more modest gain of 1.50%.

For the DAX30 and EuroStoxx600, 0.46% and 0.28% losses respectively on Friday pulled back the pair, while the CAC40 ended the day flat.

Corporate earnings and economic data were in focus in the week as was chatter from the U.S and China on trade.

On the trade front, the majors found strong support from news of Beijing and Washington agreeing to rollback some tariffs.

This came off the back of news that Washington was preparing to issue licenses to U.S firms to do business with Huawei Technologies.

Four days in the green out of five delivered the solid gains for the week.

A pullback on Friday came as a result of the news of disagreements within Washington over the removal of tariffs on Chinese goods.

The Stats

It was another busy week on the Eurozone economic calendar.

In a busy first half of the week, October private sector PMIs, Eurozone retail sales figures, and German factory orders were in focus.

On the PMI front, Spain’s manufacturing sector deteriorated further, with the PMI falling from 47.7 to 46.8. The numbers were more upbeat elsewhere, with the French manufacturing PMI rising from 50.5 to 50.7.

In spite of the positive numbers, Italy, Germany, and the Eurozone’s manufacturing PMIs continued to sit at sub-50 levels.

On Wednesday, service sector PMIs were also skewed to the positive. While Spain’s services PMI fell from 53.3 to 52.7, it was positive for the rest of the member states.

The positively skewed numbers led to a rise in the composite PMI from 50.2 to 50.6.

In spite of the positive numbers, the composite PMI remained close to September’s six-and-a-half-year low.

Out of Germany, factory orders rose by 1.3%, reversing a 0.4% decline in August, providing support, with Eurozone retail sales up by 0.1%.

On Thursday, German industrial production figures failed to pin back the European majors, in spite of a 0.6% decline. The upbeat factory order numbers pointed to a pickup in industrial production at the start of the 4th quarter.

German trade data wrapped things up on Friday. A widening in the trade surplus from €18.1bn to €19.2bn failed to make it a 6th consecutive day in the green for the DAX.

The Market Movers

From the DAX, it was a bullish week for the auto sector. BMW led the way for the week once more, rallying by 8.05. Volkswagen and Continental also saw solid gains, rising by 5.22% and 6.94% respectively. Daimler trailed the pack in the week, rising by just 1.52%.

It was also a bullish week for the banking sector, in spite of a sharp pullback on Friday. Deutsche Bank rallied by 4.54%, with Commerzbank up by 2.57%.

From the CAC, the banks also found strong support, reversing previous week losses. Soc Gen led the way, rallying by 9.78%, with BNP Paribas up by 7.50%. Credit Agricole made a more modest 4.33% gain, with a 2.31% slide on Friday limiting the upside.

Credit Agricole’s slide on Friday came off the back of the bank’s quarterly earnings results. While net profit beat estimates, a slide in net income from the retail operation weighed, as net interest income declined in the quarter.

The French auto sector also saw green. Peugeot rose by 3.25%, while Renault eked out a 0.04% gain.

On the VIX Index

The VIX Index fell 1.87% in the week ending 8th November. Following on from a 2.77% decline from the previous week, the VIX ended the week at 12.1.

In spite of 3 days in the green out of 5, the weekly loss came as a result of the U.S and China’s progress on trade talks.

Throughout the week, economic data provided support, with the stats skewed to the negative for the Greenback.

The Week Ahead

It’s a busy week on the Eurozone economic calendar. November ZEW economic sentiment figures for Germany and the Eurozone are due out on Tuesday.

Following the IMF’s Regional Economic Outlook Report last week, we can expect the majors to be particularly sensitive to consumer sentiment and spending figures.

Eurozone industrial production figures for September will provide direction on Wednesday, ahead of 3rd quarter GDP numbers on Thursday.

Barring a revision to 1st estimate numbers for the Eurozone, Germany’s 1st estimate GDP numbers will have the greatest influence. Forecasts are for the German economy to contract by 0.1%.

The Eurozone’s September trade figures will wrap up the week, with forecasts market positive.

Barring particularly dire numbers, we would expect finalized October inflation figures to have a muted impact throughout the week.

From outside of the Eurozone, expect China industrial production figures, due out on Thursday to also provide direction.

On the geopolitical front, chatter from Beijing and the U.S on trade requires monitoring. There is also UK politics to consider.

There are also corporate earnings to track throughout the week, with Continental and Infineon Tech likely to garner plenty of attention.

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