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European Equities: Futures Point to another Sell-off as more Countries Go into Lockdown

The majors are set for a major slide at the open with the DAX Futures down 672.5 points. Coronavirus news continues to batter the markets.
Bob Mason
economy up and down

Economic Calendar:

Monday, 23rd March

Eurozone Consumer Confidence Flash (Mar)

Tuesday, 24th March

French Manufacturing PMI (Mar) Prelim

French Services PMI (Mar) Prelim

German Manufacturing PMI (Mar) Prelim

German Services PMI (Mar) Prelim

Eurozone Manufacturing PMI (Mar) Prelim

Eurozone Markit Composite PMI (Mar) Prelim

Eurozone Services PMI (Mar) Prelim

Wednesday, 25th March

German IFO Business Climate Index (Mar)

French Jobseekers Total

Thursday, 26th March

GfK German Consumer Climate (Apr)

ECB Economic Bulletin

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The Majors

It was a bullish end to the week for the European majors on Friday, with the ECB move on Thursday delivering a 2nd day in the green.

The upside late in the week ultimately came from the ECB’s assess purchasing move, which briefly eased tension across the markets.

Messaging from the ECB was clear and vastly different from the stand back approach taken earlier in the month.

The ECB stated that they would do whatever it takes to deliver support including revising self-imposed limits to support the economy.

Similar messages came from central banks and governments across the globe. This was in response to the spread of COVID-19 gathering pace across the West.

While Italy sees the total number of deaths continue to climb well above those in China, total cases in the U.S are also accelerating.

As we saw in Italy and other European countries, the demographics suggest that the number of deaths will likely see a sharp increase in the weeks ahead.

The Stats

It was a quiet day on the Eurozone economic calendar on Friday, with German wholesale inflation figures of February in focus.

According to Destatis, the Producer Price Index fell by 0.4%, month-on-month, in February. In January, the index had risen by 0.8%. Economists had forecast a 0.1% decline.

  • Energy prices as a whole slid by 1.6% (-2.5% y/y).
  • Excluding energy, the overall index was flat (+0.6% y/y).
  • Prices for intermediate goods slipped by 0.2% (-1.6% y/y), while prices for non-durable consumer goods rose by 0.4% (+3.9% y/y)
  • The Index of Producer Prices for industrial products declined by 0.1%, year-on-year, in February

The Market Movers

For the DAX: It was a bullish day for the auto sector. BMW and Continental led the way, rallying by 6.79% and 4.15% respectively, with Volkswagen gaining 3.87%. Daimler saw a more modest rise of 0.90% on the day.

It was back into the red for the banks, however, with economic doom and gloom weighing. Commerzbank sipped by 1.77%, with Deutsche Bank falling by 3.14%.

Deutsche Lufthansa managed to close out the day flat following a 3.61% gain from Thursday.

From the CAC, it was also a bullish day for the banks. BNP Paribas rose by 0.94%, while Credit Agricole and Soc Gen rallied by 9.77% and by 6.28% respectively.

It was also a bullish day for the auto sector. Peugeot rallied by 12.71%, while Renault saw a more modest 4.76% gain on the day.

Air France-KLM continued to find support, with a 1.47% gain coming off the back of a 7.04% rally on Thursday. Airbus SE was also on the move, surging by 18.7% off the back of a 9.51% rally on Thursday. From the Dow, Boeing continued to see red, however, falling by a further 2.76% following a 4.10% slide on Thursday.

On the VIX Index

The VIX saw its 2nd consecutive day in the red on Friday, falling by 8.28%. Following on from a 5.82% decline on Thursday, the VIX ended the day at 66.0.

A pullback on the day came in spite of the U.S majors closing out the day in the red. Negative sentiment towards the spread of the coronavirus weighed on the U.S majors on the day.

The latest figures show that the spread of COVID-19 has accelerated, leading to shutdowns across major states in the U.S.

We would expect the VIX to return to its recent highs as the markets begin to consider a more material impact on the economy. Barring essentials, service sector activity is expected to grind to a halt, with weekly jobless claims projected to break 1m…

On Friday, the S&P500 slid by 4.34%, with the Dow and NASDAQ falling by 4.55% and 3.79% respectively.

The Day Ahead

It’s another quiet day ahead on the Eurozone economic calendar. The Eurozone’s flash consumer confidence figure for March is due out.

We’ve seen plenty of sensitivity to the numbers in recent months and we would expect the same late in the European session.

Through the large part of the session, however, expect the news wires to remain the key driver. The markets will consider the latest COVID-19 numbers, the widening shutdown across the bloc and government steps to combat the economic impact.

From the U.S, there are no material stats to influence, which will also give the latest coronavirus numbers to influence. Hopes are that a bipartisan vote will deliver much-needed fiscal support later in the week. Chatter from the Oval Office and from the Hill will need to be monitored in the day.

While some will be looking at current valuations as a possible bottom, the widening spread supports the tumble in the Futures markets early on.

In the futures markets, at the time of writing, the DAX was down by 672.5 points, with the Dow down by 993 points.

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