European Equities: Brexit, COVID-19 and U.S Stats to Drive the Majors

The Majors

It was a bullish day for the European majors on Tuesday. The CAC40 rose by 1.36%, with the DAX30 and EuroStoxx600 ending the day with gains of 1.30% and 1.18% respectively.

Support kicked in from news of progress towards a Brexit deal and positive reaction to the U.S stimulus package. On the Brexit front, while there were reports of progress, Uk fisheries remained a hurdle.

The upside came in spite of widening concerns over the continued rise in COVID-19 cases and the identification of the new strain of the coronavirus.

For now, vaccine approvals and the commencement of vaccinations eased some of the market angst over the news of new strains. This dynamic could change, however, should any strains become resilient to the vaccines now available.

On Tuesday, news hit the wires that BioNTech and Monderna Inc. were carrying out tests to establish whether the new UK stain is resilient to their respective vaccines. The outcome of these tests will have a material impact on market risk sentiment.

The Stats

It was a relatively quiet day on the economic calendar. German GfK consumer climate figures for January were in focus in the early part of the European session.

The GfK Consumer Climate Indicator fell from -6.7 to -7.3 in January. Economists had forecasted a larger decline to -8.8.

According to the GfK report,

• Income expectations declined, while economic expectations and propensity to buy saw marginal increases.
• Uncertainty stemming from the continued rise in new cases and lockdown measures delivered the mixed results.
• The economic expectations indicator rose by 4.6 points to 4.4 points, with the propensity to buy indicator rising by 6.1 points to 36.6 points. In spite of the rise, the Propensity to Buy indicator remained 16 points below its rate of last year.
• Weighing on the headline number was a 1 point fall in the income expectations index to 3.6 points. The decline left the Income Expectations indicator down by 31 points from the same time last year.

From the U.S

It was a busier day on the economic calendar. Finalized 3^rd quarter GDP, existing home sales figures for November, and December consumer confidence figures were in focus late in the session.

Consumer confidence was the main area of focus on Tuesday. In December, the CB Consumer Confidence Index fell from 96.1 to 88.6.

• The Present Situation Index slid from 105.9 to 90.3, while the Expectations Index rose from 84.3 to 87.5.
• Concerns over the sharp increase in new COVID-19 cases weighed on consumer’s assessment of current conditions.

In the 3^rd quarter, the U.S economy rebounded by 33.4%, reversing a 31.4% meltdown from the 2^nd quarter. This was up from a prelim 33.1%. Existing home sales fell by 2.5% in November, partially reversing a 4.4% rise from October. The stats had a muted impact on the European majors, however.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Friday. Continental eked out a 0.04% gain to buck the trend on the day. BMW and Volkswagen fell by 0.87% and by 0.65% respectively, with Daimler declining by a more modest 0.25%.

It was a bullish day for the banks, however. Deutsche Bank rose by 0.59%, with Commerzbank rallying by 2.20%.

From the CAC, it was a bullish day for the banks. BNP Paribas and Credit Agricole rose by 1.85% and by 1.99% respectively. Soc Gen led the way, however, with a 2.55% gain.

The French auto sector also found support. Peugeot rallied by 2.71%, with Renault gaining 1.92%.

Air France-KLM jumped by 4.94%, with Airbus SE rising by 1.62%.

On the VIX Index

It was back into the red for the VIX on Tuesday, logging a 5^th day in the red from 6. Partially reversing a 16.64% gain from Monday, the VIX fell by 3.7% to end the day at 24.23.

It was another mixed day for the U.S majors. The Dow and SP500 fell by 0.67% and by 0.21% respectively, while the NASDAQ ended the day up by 0.51%.

Market jitters over the new strain of the coronavirus and a continued rise in new COVID-19 cases in the U.S weighed.

The shift in risk sentiment came in spite of the COVID-19 stimulus package. Another round of lockdown measures would water down the impact of the latest stimulus package.

On Tuesday, the total number of COVID-19 cases worldwide inched towards 80 million. The U.S saw the total number of cases surge to 18.56 million on Tuesday, with the total number of deaths rising to 328,353.

The Day Ahead

It’s another quiet day ahead on the economic calendar. Key stats from the Eurozone include finalized 3^rd quarter GDP numbers for Spain.

We don’t expect the numbers to have a material impact on the majors, however.

Following Tuesday’s market reaction to the U.S stimulus bill, the focus will likely return to Brexit and COVID-19 updates.

From the U.S, it’s a busy day ahead on the economic data front. Key stats include November durable goods orders, inflation, and personal spending figures. The all-important jobless claims figures are also due out.

Expect core durable goods and initial jobless claims figures to have the greatest influence on the day.

Finalized Michigan consumer sentiment and new home sales figures are also due out. We would expect these numbers to have a muted impact on the European majors, however.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 38 points.

For a look at all of today’s economic events, check out our economic calendar.