European Equities: A Month in Review – May 2021

The Majors

It was yet another bullish month for the European majors in May, logging a 4^th consecutive monthly gain.

The CAC40 rose by 2.83% to lead the way, with the DAX30 and EuroStoxx600 gaining 1.88% and 2.11% respectively.

After a bearish start to the year, with January having delivered heavy losses, the CAC40 was up 16.14% year-to-date. The DAX30 and EuroStoxx600 weren’t far behind, with year-to-date gains of 12.41% and 11.96% respectively.

Economic data and continued assurances from the ECB of unwavering support delivered the upside in May.

Market optimism towards the economic outlook, as the EU began to reopen for tourism also drove the major markets northwards.

The Stats

It was a busy month on the Eurozone economic calendar.

While 1^st quarter GDP figures for Germany and France disappointed, private sector PMIs continued to impress.

The markets were able to stomach softer manufacturing numbers, with the services sector seeing a marked pickup in growth.

According to prelim figures for May, the Eurozone’s services PMI jumped from 50.5 to 55.1, while the manufacturing PMI slipped from 62.9 to 62.8.

Consumer and business confidence was also on the rise in response to the reopening of economies across the EU.

The pickup in both business and consumer confidence was aligned with market optimism towards the economic outlook.

In May, Germany’s IFO Business Climate Index rose from 96.6 to 99.2, with the GfK Consumer Climate Index climbing from -8.6 to -7.0 for June.

Confidence was also on the rise in France.

Inflation figures did influence in the month, however, with inflation accelerating across the Eurozone.

According to prelim figures, Germany’s annual rate of inflation ticked up from 2.0% to 2.5%. Italy also experienced a pickup in inflationary pressures, as did France and Spain.

Assurances from the ECB that there would be no tapering to the asset purchasing program limited the damage, however.

From the U.S

Economic data was also skewed to the positive in the month.

Key through the month was a downward trend in the weekly jobless claims.

After having fallen to sub-500k levels in the week ending 30^th April, claims fell to 406k in the week ending 21^st May.

April core durable goods and 1^st quarter GDP numbers also delivered support, as did a marked increase in service sector activity.

According to prelim figures, the Markit Services PMI increased from 64.7 to 70.1 in May.

A pickup in inflationary pressure did test the markets, however. The FED’s preferred Core PCE Price Index jumped by 3.1% year-on-year in April. In March, the index had increased by a more modest 1.9%.

Following assurances from the FED Chair that there would be no tapering to the asset purchasing program, the latest FOMC minutes revealed that members were willing to begin discussing a possible tapering in the coming months.

Over the course of the month, FOMC members voiced similar sentiment. In spite of the FED’s likely shift, however, market optimism towards the economic outlook limited the impact on the European majors.

The Market Movers

For the DAX: It was a bullish month for the auto sector in May. Continental rallied by 6.73%, with Volkswagen and BMW seeing gains of 5.28% and 4.07% respectively. Daimler ended the month with a more modest 2.77% gain.

It was another bullish month for the banks. Deutsche Bank rose by 4.04%, with Commerzbank jumping by 20.22%.

From the CAC, it was a mixed month for the banking sector. Soc Gen led the way once more, however, rallying by 10.69%, with BNP Paribas gaining 4.61%. Credit Agricole bucked the trend, however, sliding by 5.21%.

It was also a bullish month for the auto sector. Renault and Stellantis NV ended the month up by 0.89% and by 17.71% respectively.

Air France-KLM slipped by 0.22%, while Airbus SE rose by 6.72%.

While economic data and a reopening of economies provided direction, corporate earnings were also in play early in the month.

On the VIX Index

It was a 4^th consecutive month in the red for the VIX in May, delivering a 6^th monthly decline in 9-months.

Following on from a 4.07% decline in April, the VIX fell by 9.94% to end the month at 16.76.

In April, the NASDAQ fell by 1.53%, while the Dow and the S&P500 ended the month up by 1.93% and by 0.55% respectively.

The Month Ahead

Following a string of impressive numbers from the Eurozone and China, we can expect continued focus on key stats.

While private sector PMIs, employment, and consumption will remain key drivers, inflation will also remain a key area of focus.

A continued uptick in inflationary pressures will bring into question assurances from the ECB doves.

From the U.S, the FED talked of a willingness to begin tapering its asset purchasing program. Much, however, will depend on inflation, consumption, and labor market conditions.

We could see more than a taper tantrum should economic indicators glow red hot.

Expect private sector PMI and trade figures from China to also influence along with spending plan chatter from Brussels and Capitol Hill.