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European Equities: Hopes of Central Bank Support Ease the Pain. Will it be enough?

By:
Bob Mason
Published: Mar 2, 2020, 03:05 UTC

The Futures markets say up at the open, even with China's manufacturing PMI at its lowest level since the GFC. Central banks will need to step up...

European Equities: Hopes of Central Bank Support Ease the Pain. Will it be enough?

Economic Calendar:

Monday, 2nd March

Spanish Manufacturing PMI (Feb)

Italian Manufacturing PMI (Feb)

French Manufacturing PMI (Feb) Final

German Manufacturing PMI (Feb) Final

Eurozone Manufacturing PMI (Feb) Final

Tuesday, 3rd March

Eurozone Core CPI (YoY) (Feb) Prelim

Eurozone CPI (MoM) (Feb) Prelim

Eurozone CPI (YoY) (Feb) Prelim

Eurozone Unemployment Rate (Jan)

Wednesday, 4th March

German Retail Sales (MoM) (Jan)

Spanish Services PMI (Feb)

Italian Services PMI (Feb)

French Services PMI (Feb) Final

German Services PMI (Feb) Final

Eurozone Markit Composite PMI (Feb) Final

Eurozone Retail Sales (MoM) (Jan)

Friday, 6th March

German Factory Orders (MoM) (Jan)

The Majors

It was a bearish end to the week for the European majors, as the spread of the coronavirus continued to weigh on market risk appetite.

The DAX30 slid by 3.86% to lead the way down on Friday, with the EuroStoxx600 and CAC400 falling by 3.38% and by 3.66% respectively.

Economic data on the day took a back seat, with the increased number of cases in Europe and cases in the U.S spooking the markets.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Friday. Economic data included French consumer spending figures for January and February unemployment numbers out of Germany.

French consumer spending slid by 1.1% in January, following a 0.3% decline in December. Economists had forecast a 0.15 increase.

For the ECB, if consumer spending is to offset the contraction in the manufacturing sector, the French are going to need to loosen the purse strings…

The disappointing spending numbers came off the back of the French economy contracting in the 4th quarter. According to 2nd estimate figures, the French economy contracted by 0.1%, which was in line with 1st estimates.

From Germany, the numbers were somewhat better, with unemployment falling by 10k in February, following a 2k decline in January. The fall in unemployment left the unemployment rate at 5%.

Prelim inflation figures out of France, Italy and Germany were also brushed aside by the markets, as risk aversion gripped the markets.

The Market Movers

For the DAX: it was a mixed day for the auto sector. BMW and Daimler continued to see red, with the pair falling by 0.31% and by 2.05% respectively. Continental and Volkswagen managed to avoid yet another day in the red, with gains of 0.34% and 1.70% respectively.

It was a particularly bearish day for the banks, however. Commerzbank fell by 4.32%, with Deutsche Bank sliding by 4.65%.

Deutsche Lufthansa avoided being the worst performer for a 3rd consecutive day, falling by just 2.92%.

From the CAC, it was another bearish day for the banks. BNP Paribas fell by 3.53%, with Credit Agricole and Soc Gen seeing heavier losses of 4.80% and by 4.23% respectively.

The auto sector also struggled once more, with Peugeot and Renault ending the day down by 3.69% and 2.70% respectively.

Air France-KLM tumbled by 6.40% following a 7.17% slump on Thursday.

On the VIX Index

The VIX rose by 2.43% on Friday. Following on from a 42.09% surge on Thursday, the VIX ended the day at 40.1.

Upward momentum continued as the markets roiled over the spread of the coronavirus that left the U.S majors in corrective territory.

While the markets were in the red once more, the S&P500 saw a more modest 0.82% loss on Friday, limiting the upside for the VIX.

Softer inflation figures and weaker than expected personal spending numbers were offset by a better than anticipated Chicago PMI.

The stats continued to support the pricing in of a near-term move by the FED.

VIX 02/03/20 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar on Monday. Key stats include February manufacturing PMI numbers out of Spain and Italy.

Finalized PMI numbers out of France, Germany, and the Eurozone are also in focus, with any deviation from prelims to also influence.

China’s manufacturing PMI numbers tested risk appetite at the open but were not enough to limit the impact of central bank chatter…

China’s private sector PMIs from the weekend and this morning, however, were the first clues of just how much damage the coronavirus has had on the economy…

Later in the day, the ISM Manufacturing PMI numbers will also influence, though the February numbers are unlikely to fully reflect the angst across the global supply china.

In the futures markets, at the time of writing, the DAX was up by 156 points, with the Dow up by 188 points. It wasn’t plain sailing in the futures markets, however, with the Dow Mini rebounding from heavy losses early on.

The hope of monetary policy support led to the rebound, with BoJ Governor Kuroda promising liquidity to deliver financial market stability.

Kuroda’s comments come off the back of expectations that the FED will also cut rates this month. Economic data out of China, with the PMI at its weakest since the Global Financial Crisis, suggests that support is likely.

It may be a tall order, however, for the markets to rebound to record highs and it wouldn’t be the first time to see a dead cat bounce…

Perhaps the biggest question to ask is how much ammunition do the likes of the BoJ and ECB have? Fortunately, however, the FED does have some wiggle room.

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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