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European Equities: The Quarter May be Over but the Worst May Have Yet to Come

As a dismal quarter comes to an end, economic uncertainty remains, with the coronavirus expected to deliver a Eurozone recession…
Bob Mason
Economic Uncertainty

Economic Calendar:

Wednesday, 1st April

German Retail Sales (MoM) (Feb)

Spanish Manufacturing PMI (Mar)

Italian Manufacturing PMI (Mar)

French Manufacturing PMI (Mar) Final

German Manufacturing PMI (Mar) Final

Eurozone Manufacturing PMI (Mar) Final

Eurozone Unemployment Rate (Feb) Final

Thursday, 2nd April

Spanish Unemployment Change

Friday, 3rd April

Spanish Services PMI (Mar)

Italian Services PMI (Mar)

French Services PMI (Mar) Final

German Services PMI (Mar) Final

Eurozone Markit Composite PMI (Mar) Final

Eurozone Services PMI (Mar) Final

Eurozone Retail Sales (MoM) (Feb)


The Majors

The majors were on the move once more on Tuesday. Leading the way was the EuroStoxx600, which rallied by 1.65%, with the CAC40 and DAX30 rising by 0.40% and 1.22% respectively.

For the month of March, the CAC40 led the way down, sliding by 17.2%, with the DAX30 and EuroStoxx600 falling by 16.44% and by 14.80% respectively.

The sell-off through February and March left the EuroStoxx600 down by 23.03%, which was the worst quarter since 2002. It was even worse for the DAX30 and CAC40, which slumped by 25.01% and by 26.46% respectively.

It was a busy day on the economic calendar that managed to distract the markets from the latest coronavirus numbers. Impressive March private sector PMI numbers out of China supported riskier assets ahead of the European open.

The reality remains, however, that the spread of the coronavirus continues and that the global economy is certainly not out of the woods.

According to the latest coronavirus figures, the total number of cases in the U.S rose to 187,347.  The total number of combined cases across France, Germany, and Italy increased to 325,621 on Tuesday. That’s an increase of more than 24,000 across the 4 member states.

The Stats

It was a busy day on the Eurozone economic calendar on Tuesday. Key stats included March unemployment figures out of Germany and prelim March inflation figures for the Eurozone.

French consumer spending figures for February and 4th quarter GDP numbers out of Spain were of little interest on the day.

According to Destatis, Germany’s unemployment rate held steady at 5% in March, with claims rising by 1,000. While this was a positive number, the numbers were taken up to 12th March and do not reflect the impact of the coronavirus on employment conditions…

On the inflation front, the Eurozone’s annual rate of inflation softened from 1.2% to 0.7%, with the core annual rate of inflation easing from 1.2% to 1.0%. Month-on-month, consumer prices increased by 0.5% in March, following a 0.2% rise in February.

According to Eurostat,

  • Food, alcohol & tobacco had the highest annual rate of inflation at 2.4% (Feb: 2.1%). This was followed by services at 1.3% (Feb: 1.6%).
  • While non-energy industrial goods saw a stable annual rate of inflation of 0.5%, energy prices slumped in March. (-4.3% compared with -0.3% in February).

From the U.S, March consumer confidence figures drew some interest but not enough to reverse gains from earlier in the day.

The markets were expecting a marked fall in confidence due to the shutdown and they got it. The CB Consumer Confidence Index fell from 130.7 to 120.0. Economists had forecast a fall to 112.0.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Tuesday. BMW rose by 0.28% to buck the trend on the day. Continental, Daimler, and Volkswagen saw relatively modest losses of 0.31%, 0.39%, and 0.57% respectively.

It was a bearish day for the banks, however. Commerzbank and Deutsche Bank fell by 0.88% and by 1.36% respectively.

Deutsche Lufthansa saw more red on Tuesday, falling by 1.97% off the back of a 3.55% slide on Monday.

From the CAC, it was another bearish day for the banks. BNP Paribas slid by 2.62%, with Credit Agricole and Soc Gen falling by 0.12% and by 0.57% respectively.

The auto sector found much-needed support, however, with Peugeot and Renault ending the day with gains of 3.36% and 2.91% respectively.

Air France-KLM bounced back from Monday’s 2.56% fall with a 6.10% rally. Airbus SE fell by a further 2.61%, however, following Monday’s 10.62% slide.

On the VIX Index

The VIX saw a 2nd consecutive day in the red, with a 6.20% fall on Tuesday. Following a 12.91% slide on Monday, the VIX ended the day at 53.5.

Across the U.S equity markets, the S&P500 fell by 1.60%, with the Dow and NASDAQ ending the day with losses of 1.84% and 0.95% respectively.

For the S&P500, a 20% slide in the 1st quarter was the worst quarter since 2008.

It wasn’t the first time that the VIX tracked the U.S majors on the day, with the VIX failing to respond to a late sell-off.

The Day Ahead

It’s another busy day ahead on the Eurozone economic calendar. Spanish and Italian Manufacturing PMI numbers for March are due out in the early part of the day. Finalized Manufacturing numbers for France, Italy and the Eurozone will also garner attention.

Expectations are for some dire numbers out of Italy and Spain that have seen the highest number of coronavirus cases.

Any downward revisions to prelim numbers from France, Germany, and the Eurozone would also influence, however. Prelim numbers had not been as bad as many had anticipated. Finalized numbers could tell a different story…

German retail sales figures and the Eurozone’s unemployment rate for February will have a muted impact on the day.

Ahead of the European open, China’s Caixin Manufacturing PMI will need to be aligned with the NBS numbers to provide support.

From the U.S, the markets preferred ISM Manufacturing PMI and ADP nonfarm employment change figures will also be in focus. Expect the Manufacturing PMI to have an impact, with the markets already pricing in particularly weak ADP numbers.

Outside of the data, the latest coronavirus numbers will provide direction early in the day. There will need to be a slower spread to support the majors and hope of an end to containment measures by May…

In the futures markets, at the time of writing, the DAX was down by 202.5 points, with the Dow down by 210 points.

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