European Equities: Asia and News Updates to Give the European Majors Direction

The Majors

It was a meltdown across the global financial markets on Monday, with riskier assets taking a hammering.

Oil prices tumbled by more than 30% at the open, as the markets responded to OPEC and Russia’s failure to strike a deal.

Negative sentiment towards supply and demand led to oil prices and the European equity markets tumbling into bearish territory.

The Saudis reportedly cut oil prices to stoke demand, suggesting an imminent ramp-up in production in what could become a lengthy price war with Russia.

The ongoing spread of the coronavirus across Europe and the U.S did the damage. The markets have already seen the initial damage to the Chinese economy.

On the day, the DAX30 tumbled by 7.94%, with the CAC40 and EuroStoxx600 ending the day with losses of 8.39% and 7.44% respectively.

Unsurprisingly, economic data continued to take a backseat, with the EU and U.S economies anticipated to be next in line to suffer the consequences of not taking containment measures early on.

The Monday slide left the European majors in bear territory. For the EuroStoxx600, this comes after having only just hit a record high on 19^th February.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Monday. German industrial production and trade figures for January were in focus going into the European open. Later in the session investor confidence numbers for the Eurozone were also in focus.

Trade

Germany’s trade surplus narrowed from €19.0bn to €18.5bn in January.

According to Destatis,

• Exports remained unchanged at €106.5bn in January, following a 0.2% rise in December.
  • Germany exported goods to the value of €63.9bn to EU member states.
  • Goods to the value of €40.7bn (-1.8%) were exported to the Euro area countries.
  • In January 2020, goods to the value of €23.2bn (-2.9%) were exported to EU countries not belonging to the Eurozone.
  • Exports to third countries totaled €42.6bn (-2.0%).
• Imports increased by 0.5%, month-on-month, to €92.7bn.
  • Germany imported goods to the value of €50.50bn from EU member states in January.
  • Goods to the value of €31.9bn (-5.4%) were imported from Euro countries.
  • In January 2020, goods to the value of €18.6bn (+3.0%) were imported from EU countries not belonging to the Eurozone.
  • Imports from third countries totaled €42.2bn (-0.9%).
• Exports to China slid by 6.5% to €7.3bn in January, while imports from China fell by just 0.5% to €10.4bn.

Production

Industrial production rose by 3.0% in January, reversing a revised 2.2% decline in December.

According to Destatis,

• Production in industry excluding energy and construction rose by 2.9%.
• Within industry, the production of intermediate goods increased by 5.1%, with the production of capital goods up by 2.1%.
• Outside of industry, energy production fell by 0.2%, while the production of construction increased by 4.7%.
• Year-on-year, industrial production fell by 1.3%.

Investor Confidence

While the stats out of Germany were better than expected, Eurozone Investor sentiment slumped in March.

The Sentix Investor Confidence Index slid from 5.20 to -17.10 in March. Economists had forecast a decline to -11.10.

While the current situation sub-index fell from 4.0 to -14.3, the expectations sub-index tumbled from 6.5 to -20.0.

The Market Movers

For the DAX: it was a dark day for the auto sector. BMW, Daimler, and Volkswagen tumbled by 13.48%, 12.86% and by 12.17% respectively. Continental saw a more modest 9.47% slide.

Risk aversion, fears of an economic meltdown and tumbling government bond yields also left the banking sector deep in the red. Commerzbank slumped by 15.44%, with Deutsche Bank tumbling by 12.00%.

Deutsche Lufthansa fell by a relatively modest 8.46%, in spite of the rising number of cases in Germany.

From the CAC, it was also a particularly bearish day for the banks. BNP Paribas tumbled by 12.28%. Credit Agricole and Soc Gen ended the day with even heavier losses of 16.86% and 17.65% respectively.

The auto sector did not do too much better. Peugeot slid by 11.39%, with Renault tumbling by 15.98%.

Air France-KLM slid by 9.29% on the day, with the slump in oil prices of little consolation for airline stocks.

On the VIX Index

It was a 3^rd consecutive day in the green for the VIX, which jumped by 29.85% on Monday. Following on from a 5.86% gain on Friday, the VIX ended the day at 54.5.

Tumbling crude oil prices, the spread of the coronavirus and suspension of U.S trading drove the VIX to an intraday high 62.1.

The VIX had last visited 60 levels back in December 2008, in the midst of the Global Financial Crisis. That year, the VIX had also hit an all-time high 96.4…

On Monday, the S&P500 fell by 7.6% and more losses could be on the way if updates on the coronavirus deliver more bad news.

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. 4^th quarter nonfarm payroll figures are due out of France along with Eurozone 3^rd estimate GDP numbers for the 4^th quarter.

We expect the numbers to continue to have a muted impact on the majors through the early part of the day.

News updates on the coronavirus and government and central bank plans to tackle the impact of the coronavirus will remain the key driver.

It may be wishful thinking to even expect a dead cat bounce following Monday’s tumble into bearish territory.

In the futures markets, at the time of writing, the Dow was up by 231 points.