European Equities: Markets to Grapple with IMF Forecasts, COVID-19 Updates and U.S Data

For the CAC40 and EuroStoxx600, it was a 5^th consecutive day in the green and a 4^th in 5-days for the DAX30.

The Stats

It was a quiet day on the Eurozone economic calendar on Tuesday, with no material stats released to provide direction.

With stats from the U.S limited to March’s import and export price figures, there was no influence from the U.S session.

Ahead of the European open, March trade data out of China beat expectations, providing further support going into the European session.

The Market Movers

For the DAX: It was a relatively bullish day for the auto sector on Tuesday. Continental and BMW led the way, rising by 1.42% and 0.98% respectively. Daimler and Volkswagen saw more modest gains of 0.28% and 0.68% respectively.

It was a mixed day for the banks, however. Commerzbank fell by 0.79%, while Deutsche Bank rose by 1.68% on the day.

Deutsche Lufthansa avoided the red, with a 0.14% gain.

From the CAC, it was a bearish start to the week for the banks. BNP Paribas fell by 2.09%, with Credit Agricole and Soc Gen sliding by 2.70% and 2.30% respectively.

The auto sector also saw red, with Peugeot and Renault seeing losses of 5.85% and 2.75% respectively.

Air France-KLM slid by 4.66%, with Airbus SE falling by 1.64% on the day.

On the VIX Index

The VIX saw red for a 4^th consecutive day on Tuesday. Following on from a 1.20% decline on Monday, the VIX slid by 8.28% to end the day at 37.8.

On the day, the VIX ended at sub-40 levels for the first time since a 5^th March 39.6.

Market sentiment towards the downward trend in the number of daily coronavirus cases continued to weigh on the VIX. Adding further downward pressure was chatter from a number of states in the U.S of an easing of lockdown measures.

The S&P500 rallied by 3.06% on Tuesday, with the Dow and NASDAQ gaining 2.39% and 3.95% respectively.

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Finalized March inflation figures for France, Italy, and Spain are due out later this morning.

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

Economic data from the U.S, however, will have some influence. U.S stats include March retail sales and Industrial production and April NY State Manufacturing numbers…

COVID-19

Looking at the coronavirus numbers, there was an end to the downward trend in new cases seen over the 3-days to Monday. While an uptick on Tuesday was minor, relative to the previous day, it was a pickup nonetheless.

On Tuesday, the total number of coronavirus cases across France, Germany, Italy, and Spain rose by 15,595 to 612,061. On Monday, the number of coronavirus cases had risen by 12,827 to 596,466.

In the U.S, the total number of cases increased by 27,509 to 613,886, taking the total number of cases globally to 1,997,666. On Monday, U.S cases had risen by 25,944 to 586,377.

Looking at the EU numbers, Italy and Germany continued to report a downward trend in new cases. France and Spain saw a pickup leading to the end of the downward trend on a consolidated basis.

The IMF

While the coronavirus numbers alone are not enough to weigh on risk appetite, the IMF certainly had an influence…

After having forecasted global growth of 3.3% for 2020 last year, the IMF slashed its forecast to a 3% contraction for the year.  To put it into perspective, the global economy had contracted by 0.1% in the Global Financial Crisis.

For the Euro Area, the IMF forecasted a contraction of 7.5%, even greater than that of the U.S, which is forecasted to contract by 5.9%.

With the markets having been focused on the COVID-19 numbers, the latest IMF forecasts should begin to shift market attention. While economies are forecasted to return to growth in 2021, much will depend upon the length of the current lockdown… The IMF was also unconvinced of a V-shaped economic rebound this year.

In the futures markets, at the time of writing, the DAX was down by 19 points, with the Dow down by 151 points.