European Equities: Risk Pendulum Swings in Favor of the Bulls Ahead of the OpenFutures point to a bullish start to the day for the majors. Monetary policy support from the PBoC is expected, with no stats out of the Eurozone to spook the majors.
Thursday, 20th February
German PPI (MoM) (Jan)
GfK German Consumer Climate (Mar)
French CPI (MoM) (Jan) Final
French HICP (MoM) (Jan) Final
Friday, 21st February
French Manufacturing PMI (Feb) Prelim
French Services PMI (Feb) Prelim
German Manufacturing PMI (Feb) Prelim
German Services PMI (Feb) Prelim
Eurozone Manufacturing PMI (Feb Prelim)
Eurozone Markit Composite PMI (Feb) Prelim
Eurozone Services PMI (Feb) Prelim
Italian CPI (MoM) (Jan) Final
Eurozone Core CPI (YoY) (Jan) Final
Eurozone CPI (MoM) (Jan) Final
Eurozone CPI (YoY) (Jan) Final
It was a bearish day for the European majors on Tuesday, with the DAX30 falling by 0.75% to lead the way down. The CAC40 and EuroStoxx600 weren’t far behind, with the pair falling by 0.48% and 0.38% respectively.
Risk aversion gripped the global financial markets as investors reacted to Apple’s profit warning from Monday, which drove demand for U.S Treasuries through Tuesday.
While the Chinese government and the PBoC are looking to limit the impact of COVID-19 on the economy, delays in factory reopenings and a material fall in demand does not bode well.
European and U.S equities at record highs have not been reflective of of the possible economic fallout that may well hit earnings in Q1 and even Q2 of this year.
It was a relatively busy day on the Eurozone economic calendar on Tuesday. ZEW economic sentiment figures from Germany and the Eurozone provided direction in the early part of the session.
In February, sentiment towards the German economy deteriorated, as investors fretted over the coronavirus outbreak and impact on world trade.
Germany’s ZEW Economic Sentiment Index fell from 26.7 to 8.7. Economists had forecast a more moderate fall to 21.5.
The Eurozone’s Economic Sentiment Index fell from 25.6 to 10.4. Economists had forecast an increase to 30.0.
From the U.S, the NY Empire State Manufacturing Index failed to provide support, in spite of a jump. The index rose from 4.8 to 12.9 in February.
The Market Movers
For the DAX: it was a bearish day for the auto sector on Tuesday. Daimler led the way down, sliding by 2.54%. BMW, Continental, and Volkswagen saw more modest losses of 1.50%, 1.42%, and 1.50% respectively.
It was also a bearish day for the banks. Commerzbank fell by 0.41%, while Deutsche Bank slid by 2.29% on the day.
Deutsche Lufthansa also saw red, falling by 0.33% as negative sentiment towards Germany’s economic outlook weighed.
From the CAC, it was a bearish day for the banks. BNP Paribas and Soc Gen fell by 0.94% and by 0.49% respectively, while Credit Agricole slid by 2.09%.
Autos also continued to struggle, with Renault facing yet more wrath from investors. Peugeot fell by 1.12%, while Renault tumbled by further 6.31% as investors continued to jump ship.
Air France-KLM found much-needed support, rising by 1.15% on the day.
On the VIX Index
The VIX was on the move after Monday’s holiday, rising by 8.41% to end the day at 14.8 on Tuesday. On Friday, the VIX had fallen by 3.32%.
Market jitters over the likely impact of COVID-19 on trade provided the VIX with support on the day. On Monday, Apple delivered a profit warning, stemming from the spread of the coronavirus, which caught the markets by surprise.
Prior to Apple’s warning, the focus had been on fiscal and monetary policy support. Positive sentiment had driven the U.S and European majors to fresh record highs.
The Day Ahead
It’s a quiet day ahead on the Eurozone economic calendar, with no material stats due out of the Eurozone to provide the majors with direction.
The lack of stats will leave the European majors in the hands of chatter from Beijing and central banks. While hopes of stimulus packages and monetary policy support are positives, the extent of the damage to China and the global economy remain unknowns.
Expect any further profit warnings to also spook the markets further…
Later in the day, housing sector stats out of the U.S will unlikely influence as the markets await the FOMC meeting minutes due out after the European close.
Tuesday’s New York Empire State Manufacturing Index numbers suggest that the FED Chair delivered a fair assessment on economic prospects last week. That doesn’t mean that U.S companies will go unscathed, however.
In the futures markets, at the time of writing, the DAX was up by 69.5 points, with the Dow up by 67 points.