European Equities: The Pain Looks Set to Continue as the Futures Point to another TumbleThere’s no dead calm on the horizon as the futures point to another slide at the open. Containment measures will add more pain…
Friday, 12th March
German CPI (MoM) (Feb) Final
French CPI (MoM) (Feb) Final
French HICP (MoM) (Feb) Final
Spanish CPI (YoY) (Feb) Final
Spanish HICP (YoY) (Feb) Final
It was a particularly bearish day for the European majors on Thursday, as the equity market rout gathered pace.
The DAX30 and CAC40 led the way down, with losses of 12.24% and 12.28%, while the EuroStoxx600 saw a more modest 11.48% tumble.
U.S President Trump blamed Europeans and banned travel from Europe in a national address on Wednesday that sank the majors.
The reversal was reported to be the worst day on record, with the markets shunning economic data and central back action on the day.
There was no support from the U.S markets, which also were in freefall as the markets also responded further to the WHO’s reclassification of the coronavirus as a pandemic. The WHO also highlighted the inaction of governments and failings to contain the spread of the virus.
It was a relatively busy day on the Eurozone economic calendar on Thursday. Key stats included Eurozone industrial production figures for January.
According to Eurostat,
Industrial production rose by 2.3% in January, following a 1.8% slide in December.
- The production of intermediate goods and capital goods rose by 3.2% and by 2.6% respectively.
- There were also increases in the production of non-durable consumer goods (0.8%) and durable consumer goods (0.7%).
- Energy production fell by 0.1%, however.
- By member state, Ireland (+5.7%) registered the largest increase in industrial production, while Latvia (-1.9%) recorded the largest fall.
- Year-on-year, industrial production was down by 1.9%.
The numbers had a muted impact on the majors, however. The markets are more interested in February and March numbers. There was also the ECB’s monetary policy decision, which was the main event of the week.
Later in the day, the ECB left interest rates unchanged at 0.25% and deposit rates unchanged at -0.5%.
Following moves by the BoE, the BoC, the FED, and the RBA, the markets had expected a rate cut, with the hold adding further pressure on the European majors.
While holding rates unchanged, the ECB did expand the asset purchasing program, while also supporting bank liquidity. The ECB announced that banks would be able to borrow at an interest rate of -0.75% to support lending to businesses and customers.
What was less surprising was Lagarde’s call on governments and other policy institutions to not only mitigate the economic impact of the virus but target containment measures.
The Market Movers
For the DAX: it was a particularly bearish day the auto sector. Continental and Daimler slumped by 17.47% and 17.18% respectively, with BMW, and Volkswagen sliding by 12.01% and 15.63% respectively.
It was also a bearish day for the banks, with Commerzbank and Deutsche Bank tumbling by 21.21% and 14.48% respectively.
Deutsche Lufthansa ended the day down by a relatively modest 11.84%, following a 7.61% fall on Wednesday.
From the CAC, it was back into the deep red for the banks. Credit Agricole and Soc Gen tumbled by 16.49% and 17.14% respectively. BNP Paribas saw a more modest 13.07% loss on the day.
It was also a bearish day for the auto sector, with Peugeot and Renault seeing losses of 11.56% and 18.02% respectively.
Air France-KLM slid by 12.69% as the markets responded to Trump’s travel ban. Airbus SE saw a heavier 16.73% loss.
On the VIX Index
The VIX saw its 5th day in the green out of 6, with a 40.02% surge on Thursday. Following on from a 13.95% gain on Wednesday, the VIX ended the day at 75.5.
Trump’s national address on Wednesday and the continued spread of the coronavirus supported the VIX.
The S&P500 tumbled by 9.51%, on a day when the S&P500 joined its European peers in bearish territory. Trading was halted for a 2nd time in a week as the S&P500 fell through the 7% circuit breaker. We haven’t seen the 13% circuit breaker triggered yet, however.
The Day Ahead
It’s a relatively busy day ahead on the Eurozone economic calendar. Finalized February inflation figures are due out of France, Spain, and Germany.
In the wake of Thursday’s press conference, the finalized numbers are unlikely to have a material impact on the majors. The ECB’s wriggle room is limited at best and the markets will need to see a marked buildup of deflationary pressures to force the ECB into a move. March numbers will certainly garner more interest.
From the U.S, prelim March consumer sentiment figures late in the session will influence, however.
Outside of the numbers, expect news updates on the coronavirus and member state chatter to remain the key driver.
With the WHO now categorizing the coronavirus as a pandemic, we can expect governments to step up preventative and containment measures that will further impact the global supply chain and travel and tourism.
In the futures markets, at the time of writing, the DAX was down by 420 points, with the Dow down by 702 points.