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European Equities: EU Fiscal Stimulus News and Economic Data in Focus

The European majors will need another catalyst after Monday’s rally. An EU Stimulus package would be a step in the right direction.
Bob Mason
EUR/USD

Economic Calendar:

Tuesday, 19th May

German ZEW Current Conditions (May)

German ZEW Economic Sentiment (May)

Eurozone ZEW Economic Sentiment (May)

Wednesday, 20th May

German PPI (MoM) (Apr)

Eurozone Core CPI (YoY) (Apr) Final

Eurozone CPI (MoM) (Apr) Final

Eurozone CPI (YoY) (Apr) Final

Eurozone Consumer Confidence Flash

Friday, 22nd May

French Manufacturing PMI (May) Prelim

French Services PMI (May) Prelim

German Manufacturing PMI (May) Prelim

German Services PMI (May) Prelim

Eurozone Manufacturing PMI (May) Prelim

Eurozone Markit Composite PMI (May) Prelim

Eurozone Services PMI (May) Prelim

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The Majors

It was a bullish start to the week for the European majors. The DAX30 rallied by 5.67% to lead the way, with the CAC40 and EuroStoxx600 seeing gains of 5.16% and 5.10% respectively.

There were no material stats from the Eurozone to rock the boat. Positive sentiment towards the ongoing easing of lockdown measures drove demand for the majors.

Crude oil prices were also on the rise, as optimism towards a pickup in economic activity overshadowed an expected long road to economic recovery.

Adding to the upside on the day was positive news on the effectiveness of a COVID-19 vaccination. This would allow governments to ease lockdown measures at a more aggressive pace.

On the monetary policy front, comments from FED Chair Powell also eased concerns that the FED has little left to offer. Powell assured the markets that the FED still has plenty in the tank to support the economy.

The Stats

It was a quiet day on the Eurozone economic calendar on Monday. There were no material stats from the Eurozone to provide the majors with direction.

There were also no stats from the U.S to influence later in the day.

The Market Movers

For the DAX: It was a particularly bullish day for the auto sector on Monday. Daimler and Volkswagen rallied by 10.26% and by 8.31% to lead the way. BMW and Continental weren’t far behind, with gains of 7.77% and 8.05% respectively.

Hopes of a pickup in economic activity also delivered support to the beleaguered banks. Deutsche Bank rallied by 9.34%, with Commerzbank gaining 8.12%.

Deutsche Lufthansa found strong support. An effective COVID-19 vaccination would allow governments to open borders and lead to a marked increase in air passenger volumes. Deutsche Lufthansa rallied by 8.11%.

From the CAC, it was a bullish day for the banking sector on Monday. Soc Gen rallied by 10.27%, with BNP Paribas and Credit Agricole ending the day with gains of 7.82% and 6.11% respectively.

It was also a bullish day for the auto sector. Peugeot and Renault rallied by 6.56% and 8.70% respectively. French autos found support on Monday, with French finance minister Bruno Le Maire speaking of government plans to support the sector.

Air France-KLM saw a relatively modest 5.48% gain, while Airbus SE surged by 12.23% only to be outdone by TechnipFMC (+13.88%) on the day.

On the VIX Index

It was a 3rd consecutive day in the red for the VIX on Monday. Following on from a 2.21% fall on Friday, the VIX slid by 8.12% to end the day at 29.3.

The markets put concerns over U.S and China tensions aside on the day, with the focus primarily on COVID-19 news updates.

A continued easing of lockdown measures, the downward trend in new cases, and news of promising early results for a vaccination delivered a boost. Surging crude oil prices on a shift in sentiment towards demand had set up the major indexes in the early part of the day.

On Monday, the S&P500 rose by 3.15%, with the Dow and NASDAQ seeing gains of 3.85% and 2.44% respectively.

The Day Ahead

It’s a busier day ahead on the Eurozone economic calendar. May’s ZEW Economic Sentiment figures for Germany and the Eurozone are due out later today.

Expect any pickup in sentiment towards the economy to provide support.

From the U.S, stats are limited to April housing sector numbers that will likely have a muted impact on the majors.

On the geopolitical risk front, updates from the EU Finance Ministers’ virtual meeting will provide direction. Any talk of a sizeable stimulus package would be positive for the majors.

Downside risks remain, however, with any chatter from Beijing or Washington on trade likely to be test support.

The Latest Coronavirus Figures

On Monday, the number of new coronavirus cases rose by 82,564 to 4,888,188. On Sunday, the number of new cases had risen by 83,321. The daily increase was lower than Sunday’s rise, while higher than 76,701 new cases on the previous Monday.

France, Germany, Italy, and Spain reported 1,916 new cases on Monday, which was down from 2,500 new cases on Sunday. On the previous Monday, 5,374 new cases had been reported.

From the U.S, the total number of cases rose by 22,231 to 1,549,895 on Monday. On Sunday, the total number of cases had risen by 19,891 On Monday, 11th May, a total of 18,196 new cases had been reported.

In the futures markets, at the time of writing, the DAX was up by 20 points, with the Dow up by 11 points.

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