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Bob Mason
Growing Euro notes arrows over the flag of European Union.

Economic Calendar:

Monday, 6th April

German Factory Orders (MoM) (Feb)

Tuesday, 7th April

German Industrial Production (MoM) (Feb)

Thursday, 9th April

German Trade Balance (Feb)

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The Majors

It was a bearish end to the week for the European majors on Friday, with the CAC40 sliding by 1.57% to lead the way down. The DAX30 and EuroStoxx600 saw modest losses of 0.47% and 0.97% respectively.

Economic data on Friday weighed heavily on the majors as the spread of the coronavirus continued across the world.

In spite of a continued lockdown in Italy and widening containment measures across the EU, the numbers continue to rise at a marked rate.

March service sector PMI figures reflected the impact and, with the lockdown now likely through April, there’s no early 2nd quarter rebound.

For Italy, the private sector numbers were particularly alarming. The world’s 8th largest economy is unlikely to recover from this any time soon.

Looking at the surge in the number of cases in Spain, we could see the world’s 13th largest economy similar to the same fate.

The Stats

It was a busy day on the Eurozone economic calendar on Friday. Italy and  Spain’s Services and Composite PMI numbers for March were in focus. Finalized PMIs for France, Germany and the Eurozone also drew attention.

Italy’s Services PMI slumped from 52.1 to 17.0 in March, with the Composite PMI tumbling from 50.7 to 20.2. This was the largest contraction in Italy’s private sector since records began back in 1998. New business also fell at the fastest pace on record, with the pace of job shedding the most marked since 2009.

Spain’s Services PMI tumbled from 52.1 to 23.0 in March, with the Composite PMI sliding from 51.8 to 26.7. A record slide in service sector activity weighed most heavily, with manufacturing sector activity contracting at the most marked pace since 2012. Not only did the private sector end a run of 6-and-a-half years of growth but also saw its largest fall in activity on record.

For France and Germany, both saw downward revisions from prelim to leave Service PMIs of 27.4 and 31.7 respectively.

The Eurozone’s Services PMI came in at 26.4, revised down from a prelim 35.7, with the composite revised down from 37.1 to 29.7. In February, the Services and Composite PMIs had stood at 52.6 and 51.6 respectively.

According to the Eurozone Composite PMI Survey,

  • The Composite Output Index recorded its largest monthly decline on record.
  • While the Manufacturing sector saw production slide at the fastest pace since 2009, the service sector activity fell at the fastest pace on record.
  • At the composite level, Germany, France, Spain, and Italy all recorded survey lows.
  • Ireland sat at the top of the table with a 131-month low 37.3.

February retail sales figures for the Eurozone had a muted impact, however, with March and April likely to deliver particularly grim numbers.

From the U.S

While ISM Non-Manufacturing PMI numbers were better than expected, a marked fall in nonfarm payrolls added further pressure.

Nonfarm payrolls tumbled by 701k in March, with more dire numbers on the horizon. Not only was it the first fall since late 2010, but it was also the largest fall since the Global Financial Crisis. That record of 800,000 will certainly be broken in April. The U.S unemployment rate jumped to 4.4%, with 5% and beyond a possibility in April.

The Market Movers

For the DAX: It was a bearish end to the week for the auto sector. Continental and Daimler led the way down with losses of 1.25% and 2.17% respectively. BMW and Volkswagen saw more modest losses of 0.85% and 0.32% respectively.

It was also a bearish day for the banks, with Commerzbank and Deutsche Bank sliding by 1.28% and by 1.75% respectively.

Deutsche Lufthansa fell by a relatively modest 0.55%.

From the CAC, it was a particularly bearish day for the banks. BNP Paribas and Soc Gen slid by 5.03% and 8.15% respectively. Credit Agricole fell by 3.80%.

Things were not much better for the auto sector. Peugeot fell by 0.38%, while Renault slid by  3.07%.

Air France-KLM managed to find support with a 1.35% gain, however, while Airbus SE fell by 1.52% to end the week deep in the red.

On the VIX Index

The VIX saw red for a 2nd consecutive day, falling by 8.07% on Friday. Following on from a 10.78% slide on Thursday, the VIX ended the day at 46.8.

Economic data from the U.S and the rest of the world and the continued rise in COVID-19 cases failed to deliver any upside.

The S&P500 ended the day with a 1.51% loss, with the Dow (-1.69%) and NASDAQ (-1.53%) also on the slide. A pullback in the VIX came in spite of the U.S equities market seeing red. The move suggests that the markets have accepted the doom and gloom.

This, therefore, predicts an end to the sizeable intraday swings that had been seen through late March. This could change, however, should the spread of the coronavirus gather pace once more.

VIX 06/04/20 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. German factory order figures for February are due out ahead of the European open.

We expect the markets to brush aside the numbers. February figures are yet to reflect the impact of the coronavirus on Germany’s private sector.

A lack of stats from the U.S will leave the focus on the COVID-19 numbers.

Spain overtook Italy over the weekend, as both continued to see marked increases in new cases and deaths.

There will need to be a marked slowdown in the number of new cases for any hope of an easing in containment measures in May.

At the time of writing, the total number of coronavirus cases across France, Germany, Italy, and Spain rose by 16,711 to 453,556. In the U.S, the total number of cases increased by 24,774 to 336,131. That took the total number of cases globally to 1,270,916.

The numbers provided support to riskier assets, in spite of the continued rise, however. The number of new cases on Sunday saw a marked decline from Saturday.,On Saturday, the U.S had reported 34,196 new cases. For France, Germany, Italy, and Spain, there had been an increase of 42,323 cases on Saturday. A lower number of deaths was also market positive going into the start of the week.

In the futures markets, at the time of writing, the DAX was up by 232 points, with the Dow up by 581 points.

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