European Equities: A Month in Review – December 2020

The Majors

It was another bullish month for the European majors in December, with COVID-19 vaccine news Brexit delivering further support.

The DAX30 rallied by 3.22% to lead the way, with the CAC40 and EuroStoxx600 gaining 0.60% and 2.48% respectively.

The gains were not as impressive as those seen in November, however, with lockdowns and a new strain of the virus testing investor sentiment.

After having seen 2 consecutive months in the red, however, a 2^nd consecutive monthly gain consolidated November’s rebound.

Adding to support for the majors, was progress towards a U.S stimulus package.

A Brexit deal, a U.S stimulus package, with the promise of more, and COVID-19 vaccines delivered optimism towards next year.

On 30^th December, the House of Commons voted 521 for and 73 against the Brexit Agreement ahead of Britain’s departure at 2300 GMT on 31^st December. The House of Lords also passed the Bill.

Also on the political front, there was plenty of action in the wake of the U.S Presidential Election. In the end, departing President Trump failed to overturn the outcome, while managing to disrupt politics on Capitol Hill.

The Stats

It was a quieter month on the Eurozone economic calendar.

Key stats included prelim December private sector PMIs for France, Germany, and the Eurozone and consumer and business sentiment figures.

A pickup in manufacturing sector activity in Germany and a return to expansion in France’s manufacturing sector delivered support.

While the services sector continued to contract, the rate of contraction eased in both France and Germany.

As a result, the Eurozone’s Composite rose from 45.3 to 49.8 in December, according to prelim figures. The all-important manufacturing PMI increased from 53.8 to 55.5.

Containment measures across member states continued to weigh on service sector activity at the end of the year.

From Germany, the Ifo Business Climate Index increased from 90.9 to 92.1, with the ZEW Economic Sentiment Indicator rising from 39.0 to 55.0. Positive vaccine news delivered the upside for both in December.

A marginal fall in consumer confidence in Germany had a muted impact. The GfK Consumer Climate Index fell from -6.8 to -7.3. Lockdown measures across Germany weighed on the index for January.

From the U.S

Economic data delivered mixed results. Consumer confidence waned in December, with the CB Consumer Confidence Index falling from 96.1 to 88.6 in December.

Retail sales saw another decline in November, with core retail sales falling by 0.9%, following a 0.1% decline in October.

Prelim private sector PMI numbers for December also disappointed. The manufacturing PMI slipped from 56.7 to 56.5, with the Services PMI falling from 58.4 to 55.3.

While the jobless claims figures delivered mixed results throughout the month, the numbers remain skewed to the negative.

Initial jobless claims had fallen back to a low 712k in the week ending 27^th November before jumping to 885k in the week ending 11^th December. While easing back to 803k the following week, claims remained elevated amidst the 2^nd wave of the pandemic.

Other key stats included core durable goods orders for November, which came up short of forecasts, and November’s nonfarm payrolls, which also disappointed.

In November, nonfarm payrolls rose by 245k, following a 638k increase in October.

From elsewhere, economic data from China continued to impress. Fixed asset investments, industrial production, and retail sales all saw a pickup in November.

On the trade front, the USD trade surplus widened from $58.44bn to $75.42bn, with exports surging by 21.1%.

At the end of the month, private sector PMIs for December reflected a slight easing in private sector activity but no by a significant margin. The NBS Manufacturing PMI fell from 52.1 to 51.9, with the Non-Manufacturing PMI falling from 56.4 to 55.7.

Monetary Policy

The ECB did test support for the majors by downwardly revising growth forecasts for 2021. Additionally, the ECB increased the PEP by €500bn. The downward revision came as EU member states reintroduced containment measures as a result of the 2^nd wave of the pandemic.

From the FED, while the FED revised upwards economic forecasts, the promise of holding bond purchases and interest rates at current levels left a dovish tone.

In December, the FED left interest rates unchanged.

The Market Movers

For the DAX: It was a mixed month for the auto sector in December. Volkswagen rallied by 7.63%, with Continental and Daimler rising by 5.94% and by 2.08% respectively. BMW bucked the trend, however, falling by 0.96%.

It was also a mixed month for the banks. Deutsche Bank slid by 4.18%, while Commerzbank ended the month up by 7.14%.

From the CAC, it was another bullish month for the banking sector. Credit Agricole rallied by 6.72%, with BNP Paribas and Soc Gen ending the month with gains of 0.30% and 1.98% respectively.

It was a particularly bullish month for the auto sector. Peugeot jumped by 13.21%, with Renault gaining 7.23%.

Supported by COVID-19 vaccine news, Air France-KLM consolidated November’s 77.94% rebound with a 2.40% gain. Airbus SE followed November’s 40.17% surge with a 2.34% rise in December.

On the VIX Index

It was back into the green for the VIX in December to mark a 4^th monthly gain in 5-months. Partially reversing a 45.9% slump from November, the VIX rose by 10.60% to end the month at 22.75.

COVID-19 vaccines and U.S politics, coupled with assured support from the FED delivered support for riskier assets in the month.

A continued rise in new COVID-19 cases supported the upside in the VIX.

In November, NASDAQ rallied by 5.65%, with the Dow and S&P500 ending the month up by 3.27% and by 3.71% respectively.

The Month Ahead

We can expect another busy month ahead on the Eurozone economic calendar. Having taken a backseat of late, economic data will begin to have a greater impact on the markets once more.

Key through the month will be January private sector PMIs, retail sales, unemployment, and business and consumer confidence.

The markets will be looking for a continued recovery across the private sector and a pickup in consumer spending.

Both business and consumer confidence will need to improve to deliver support.

From the U.S, nonfarm payrolls, service sector activity, and consumer confidence will be key areas of focus.

Out of China, trade data and private sector PMIs will also provide direction.

On the monetary policy front, the promise of continued support will also influence.

Away from the economic calendar, expect COVID-19 news and vaccination updates and chatter from Capitol Hill to also provide direction. The markets are expecting the Democrats to deliver more stimulus. There is also the Senate race to factor in.