European Equities: Service Sector PMIs and Retail Sales in Focus from the Calendar

The Majors

It was a bullish day for the European majors on Tuesday, with the EuroStoxx600 rising by 1.37% to lead the way. The CAC40 and DAX30 saw more modest gains of 1.12% and 1.08% respectively.

Support for the European majors kicked in from the open as investors responded to the talk of fiscal and monetary policy support.

G7 nations were set to have a call on Tuesday evening to discuss and agree on how to tackle the impact of the coronavirus on the global economy.

The news had given the majors had found strong support early in the session before they pared gains later in the day.

Following on from the RBA rate cut ahead of the European open, the FED delivered an emergency rate cut later in the day. The FED cut rates by 50 basis points, a move that had been expected to come at the FOMC meeting later in the month.

For the markets, the focus on central banks and governments shifted focus away from the spread of the coronavirus on the day.

Ultimately, however, the gains were modest, with the promise of fiscal policy support unlikely to translate into immediate action.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Tuesday. Economic data included prelim February inflation and January unemployment figures for the Eurozone.

While the Eurozone’s unemployment rate held steady at 7.4%, which was in line with forecasts, inflationary pressures softened in February.

According to Eurostat,

• The annual rate of inflation softened from 1.4% to 1.2% in February, according to prelim figures.
• Prices for food, alcohol, & tobacco is expected to have the highest annual rate in February, up from 2.1% to 2.2%.
• There was also support from services, with the annual rate up from 1.5% to 1.6%.
• Non-energy industrial goods prices increased by a more modest 0.5% (+0.3% in January).
• Energy prices fell by 0.3% (+1.9% in January), which led to the softer headline number.
• The core annual rate of inflation picked up from 1.1% to 1.2%, with consumer prices rising by 0.2%, month-on-month.

Looking at the unemployment figures, according to Eurostat,

• The Netherlands reported the lowest unemployment rate of 3.0%, while Greece (16.5%) and Spain (13.7%) had the highest.
• Compared with a year ago, the unemployment rate fell in 13 Eurozone member states, while holding steady in Germany.
• The unemployment rate increased in Estonia, Slovenia, Portugal, Lithuania, and Luxembourg.
• Greece registered the largest annual fall in unemployment (18.6% to 16.5%), followed by Cyprus (7.6% to 6.0%).

There were no stats out of the U.S to influence later in the session, leaving the FED’s emergency rate cut and updates from the G7 to influence.

The Market Movers

For the DAX: it was a particularly bearish day for the auto sector. Daimler led the way down, sliding by 4.18%, with BMW and Continental falling by 2.98% and by 1.45% respectively. Volkswagen saw a more modest loss of 1.10% on the day.

It was another particularly bearish day for the banks, as the markets responded to the FED rate cut and the promise of support from the ECB. Commerzbank fell by 1.83%, with Deutsche Bank sliding by 5.29%.

Deutsche Lufthansa managed to reverse Monday’s losses, with a 4.42% gain on Tuesday.

From the CAC, it was another bearish day for the banks. BNP Paribas fell by 1.48%, with Credit Agricole and Soc Gen seeing heavier losses of 2.34% and by 3.16% respectively.

It was a mixed day for the auto sector, however, with Peugeot rising by 1.01%, while Renault ending the day down by 2.34%.

Air France-KLM found much-needed support, rising by 1.92%.

On the VIX Index

The VIX rose by 10.17% on Tuesday. Partially reversing a 16.68% slide from Monday, the VIX ended the day at 36.8.

In the early part of the day, the U.S majors had found support, with the promise of fiscal and monetary policy support.

The markets had anticipated a FED rate cut at the next FOMC, however, and not an emergency rate cut on Tuesday.

While the 50 basis point rate cut supported riskier assets immediately after the announcement, demand for Treasuries jumped later in the day.

The U.S majors coughed up early gains as uncertainty over the economic outlook plagued the markets, leaving the S&P500 down by 2.81% on the day.

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. Key stats include service sector PMIs for Italy and Spain and retail sales figures for Germany and the Eurozone.

Finalized service and composite PMI numbers for France, Germany and the Eurozone will also influence.

We would expect retail sales figures and the Eurozone’s Composite to have the greatest impact on the day.

February numbers have yet to fully reflect the effects of the coronavirus on the private sector, however, so any positive numbers should have a relatively limited impact.

From the U.S, we expect February’s ADP Nonfarm Employment Change and ISM Non-Manufacturing PMI to also provide direction.

Outside of the numbers, there will be more chatter from governments and central banks and updates on the spread of the coronavirus to distract.

In the futures markets, at the time of writing, the DAX was up 2 points, with the Dow up by 234 points.