European Equities: A Month in Review – February 2021It was a bullish month for the European majors, in spite of a end of month sell-off. COVID-19 vaccinations, economic data, corporate earnings, and stimulus delivered optimism.
It was bullish month for the European majors in February, reversing January’s COVID-19 driven losses. The upside came in spite of a bearish final week of the month.
The CAC40 rallied by 5.63%, with the DAX30 and EuroStoxx600 ending the month with gains of 2.63% and 2.31% respectively.
In the final week of the month, market concerns over reinflation and impact on central bank monetary policy pared some of the gains, however.
Better than expected economic data from the Eurozone and the U.S and optimism towards the economic recovery delivered support.
Corporate earnings also delivered support in the month.
It was a busy month on the Eurozone economic calendar and an important one. The stats revealed that the impact of 2nd lockdown measures was less severe than from the first time around.
Key takes away from the economic calendar included a marked pickup in manufacturing sector activity in February.
The French manufacturing PMI and Germany’s manufacturing PMI both jumped to 3-year highs, driving the Eurozone manufacturing PMI to a 3-year high.
Service sector activity continued to struggle, however, with the pace of contraction picking up as a result of extended lockdown measures.
The Eurozone’s services PMI fell to a 3-month low 44.7 in February, according to prelim figures.
Other stats of significance included German ifo and GfK business and consumer sentiment figures, both of which were market positive.
2nd estimate GDP numbers for the 4th quarter were mixed, however. While Germany and the Eurozone saw upward revisions, France saw a downward revision.
The devil was in the details, with the numbers revealing that domestic consumption will need to see a marked pickup to support an economic recovery.
Of concern for the markets, however, was a pickup in inflationary pressures, leading to a late pullback in the European majors.
For the Eurozone, the annual core rate of inflation accelerated from 0.2% to 1.4% in January.
From the U.S
Economic data delivered mixed results once more.
Retail sales bounced back in January, with service sector activity also picking up in January, according to the all-important ISM survey-based figures.
Consumer confidence numbers were mixed, however. While the market’s preferred CB survey showed a pickup in confidence, Michigan survey-based figures showed sentiment waning in February.
Also negative was slower growth in the manufacturing sector.
Labor market numbers also delivered mixed results. While initial jobless claims fell to a February low 730k, NFP numbers for January disappointed.
Following a 227k slide in December, nonfarm payrolls increased by just 49k in January.
While the numbers were mixed, progress towards a U.S stimulus package and continued support from the FED fueled optimism for what lies ahead.
Progress on the COVID-19 vaccine front was also positive for riskier assets. It ultimately culminated, however, in jitters over reinflation and a possible need for central banks to shift position on monetary policy.
The ECB and the FED stood pat on monetary policy once more. Significantly, FED Chair Powell looked to assure the markets of continued monetary policy support by ruling out any tapering.
Late in the month Powell also testified on Capitol Hill, again reassuring the markets that the FED would stand pat for the foreseeable future.
The markets were not convinced, however. ECB President Lagarde faced similar pressure to comfort the markets over rising bond yields early in the week. Again, the markets ultimately brushed aside the assurances of unwavering support.
The Market Movers
For the DAX: It was a bullish month for the auto sector in February. Volkswagen and Daimler rallied by 10.19% and by 14.19% respectively to lead the way. BMW and Continental saw relatively modest gains of 2.14% and 2.81% respectively.
It was a mixed month for the banks, however. Deutsche Bank surged by 22.40%, while Commerzbank ended the month down by 0.91%.
From the CAC, it was a particularly bullish month for the banking sector. BNP Paribas and Credit Agricole jumped by 23.88% and by 23.77% respectively. Soc Gen led the way, however, surging by 32.97%.
It was also a bullish month for the auto sector. Renault rose by 5.33%, with Stellantis NV ended the month up by 7.27%.
Air France-KLM and Airbus SE reversed January’s losses, with gains of 14.37% and 15.28% respectively.
On the VIX Index
It was back into the red for the VIX in February, leading to just a 2nd monthly fall in 7-months. Partially reversing a 45.45% jump from February, the VIX fell by 15.53% to end the month at 27.95.
In January, NASDAQ rose by 0.93%, while the Dow and S&P500 ending the month up by 3.17% and by 2.61% respectively.
The Month Ahead
We can expect more of the same in the month ahead on the Eurozone economic calendar. While the markets will look for manufacturing sector activity to deliver, service sector conditions will also need to improve.
Consumer spending will need to pick up across the Euro bloc to support a more sustained economic recovery.
From the U.S, nonfarm payrolls, service sector activity, and consumer confidence will remain key areas of focus.
Out of China, trade data and private sector PMIs will also provide direction.
On the monetary policy front, expect any hawkish chatter to catch the markets off-guard.
Central banks will need to be agile near-term to manage any material shift in economic indicators. The markets will be looking to pre-empt any shift in central bank forward guidance.
Away from the economic calendar, expect COVID-19 news and geopolitics to also influence. In particular, the markets will be looking for an easing to lockdown measures as progress is made on the COVID-19 vaccination front.
Geopolitically, Iran’s nuclear agreement is back in the spotlight. The U.S attack on Iran-linked groups in Syria in late February will set to the tone as both sides look to return to the negotiating table.
From China, not only will the markets need to see continued improvement in economic indicators but also better relations with the U.S on foreign policy and trade…