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European Equities: Futures Point to more Red as Investors Struggle to Shake off the IMF Forecasts

By:
Bob Mason

Futures point to more losses ahead, as investors continue to fret over the economic outlook...

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Economic Calendar:

Thursday, 16th April

German CPI (MoM) (Mar) Final

Eurozone Industrial Production (MoM) (Feb)

Friday, 17th April

Eurozone Core CPI (YoY) (Mar)

Eurozone CPI (MoM) (Mar) Final

Eurozone CPI (YoY) (Mar) Final

The Majors

It was a particularly bearish day for the European majors on Wednesday, with the DAX30 sliding by 3.90% to lead the way down.

Things were not much better for the CAC40 and EuroStoxx600, which saw a run of 5 consecutive days in the green come to an end. The pair ended the day with losses of 3.76% and 3.25% respectively.

Focus shifted to the impact of COVID-19 on the European and global economy on Tuesday, in the wake of the latest IMF forecasts.

After plenty of chatter, the IMF economic forecasts for 2020 pointed to the worst economic crisis since the Great Depression.

As covered in yesterday’s report, the global economy is forecast to contract by 3%, revised from 3.3% growth. For the Euro area, the economy is forecast to contract by 7.5%.

For the first day in many weeks, the markets brushed aside positive news related to COVID-19. News of some relaxation of containment measures in the worsed hit EU member states failed to provide support.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Wednesday. Finalized March inflation figures for France, Italy, and Spain were in focus in the early part of the session.

The numbers had a muted impact on the majors, however, with the markets more focused on the IMF numbers and stats from the U.S.

Economic data from the U.S certainly supported the IMF’s doom and gloom outlook.

Core retail sales slid by 4.5% in March, with retail sales tumbling by 8.7%. From the manufacturing sector, the NY Empire State Manufacturing Index slid from -21.5 to -78.2 in April.

Industrial production figures were no better, with production sliding by 5.4%, month-on-month, in March.

The Market Movers

For the DAX: It was a particularly bearish day for the auto sector on Wednesday. Daimler and Continental tumbled by 7.72% and by 7.25% respectively to lead the way down. BMW and Volkswagen weren’t far behind, with losses of 5.85% and 6.69% respectively.

It was an even more bearish day for the banks. Commerzbank and Deutsche Bank tumbled by 9.67% and by 8.20% respectively.

Deutsche Lufthansa also saw red on the day, falling by a more modest 5.65%.

From the CAC, it was also bearish for the banks. BNP Paribas slid by 7.16%, with Credit Agricole and Soc Gen tumbling by 8.13% and 8.20% respectively.

The auto sector also saw deep red, with Peugeot and Renault falling by 6.97% and 8.03% respectively.

Air France-KLM (-6.28%) and Airbus SE (-8.67%) also struggled amidst the sell-off.

On the VIX Index

A run of 4 consecutive daily losses came to an end on Wednesday, with the VIX rising by 8.16%. Reversing an 8.28% slide from Tuesday, the VIX ended the day at 40.8.

Talk of a number of member states looking to begin reopening for business took a backseat on the day. The IMF spelled out the economic fallout from COVID-19 for the markets late on Tuesday.

For the U.S, the IMF forecasted the economy to contract by 5.9% this year. With the global economy forecasted to contract by 3%, the markets were given an idea of what effect the global lockdown has had…

Economic data from the U.S certainly didn’t help shift the mood on the day.

The S&P500 fell by 2.20%, with the Dow and NASDAQ ending the day with losses of 1.86% and 1.44% respectively.

VIX 16/04/20 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Germany’s finalized March inflation figures are due out along with February’s industrial production figures for the Eurozone.

We would expect the stats to have a muted impact on the majors, however.

From the U.S, the weekly jobless claims and the Philly FED’s Manufacturing Index numbers for April will influence.

Away from the calendar, the markets will likely consider the latest coronavirus numbers. In reality, however, the IMF may well have shifted attention back to the economic data and the economic fall-out…

On Wednesday, the total number of coronavirus cases across France, Germany, Italy, and Spain rose by 13,354 to 625,415. On Tuesday, the number of new cases had risen by 15,595 to 612,061

In the U.S, the total number of cases increased by 29,622 to 643,508, taking the total number of cases globally to 2,078,016. On Tuesday, the U.S had reported 27,509 new cases.

Looking at the EU numbers, France, Italy, and Spain saw a lower number of new cases from the day prior. All 4 member states continued to report a downward trend from the start of the month.

While the COVID-19 numbers remain supportive of risk appetite, sentiment towards the economic outlook will continue to test market resilience.

In the futures markets, at the time of writing, the DAX was down by 78 points, with the Dow down by 219 points.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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