European Equities: A Month in Review – November 2021
It was a bearish November for the European majors, which partially reversed October’s rebound from a bearish end to the 3rd quarter.
The EuroStoxx600 and the CAC40 fell by 2.64% and by 1.60% respectively, with the DAX30 ending the month down by 3.75%.
A pickup in new COVID-19 cases across the EU and government responses to curb the spread going into the winter months tested support late in the month. At the end of the month, however, the emergence of the new strain and spread of Omicron weighed heavily.
Comments from Moderna CEO of a likely marked fall in vaccine efficacy against the latest strain also weighed heavily on riskier assets.
On the monetary policy front, while the ECB continued to stand by its view on inflation, there was more hawkish chatter from the U.S. FED Chair Powell delivered hawkish testimony at the end of the month, talking of the need to discuss speeding up the tapering to the bond purchases. Powell also suggested that the FED should shift from referencing inflation as transitory.
Powell’s testimony followed a pullback in the equity markets in response to his reappointment as FED chair earlier in the month.
Economic data took a back seat in the month, in spite of better-than-expected numbers from China. For the Eurozone, a further pickup in inflation didn’t help late in the month.
Prelim November private sector PMIs for France, Germany, and the Eurozone were market positive. In November, the Eurozone’s composite PMI rose from 54.2 to 55.8, easing concerns of any slowdown in the economic recovery. Cost pressures and supply chain issues remained a hindrance midway through the final quarter, however.
More significantly, were weaker business and consumer sentiment figures in response to inflation and COVID-19.
Germany’s Ifo Business Climate Index fell from 97.7 to 96.5 in November, with Germany’s GfK Consumer Climate Indicator falling from 1.0 to -1.6.
For the Eurozone, there was a similar trend, with the consumer confidence index falling from -4.8 to -6.8.
On the inflation front, the Eurozone’s annual rate of inflation accelerated from 4.1% to 4.9% in November, adding to the market angst in the month.
From the U.S
Economic data was upbeat, supporting a more hawkish FED Chair.
Labor Market Numbers
Nonfarm payroll and weekly jobless claims were positives in the month.
In October, nonfarm payrolls jumped by 604k, with initial jobless claims falling back to sub-200k levels for the first time since the start of the pandemic.
Consumption and Consumer Confidence
In spite of improving labor market conditions, consumer confidence waned, however. In November, the CB Consumer Confidence Index fell from 111.6 to 109.5
This was accompanied by a fall in the Michigan Consumer Sentiment Index from 71.7 to 66.8 in November.
In spite of the pickup in consumer prices, retail sales figures were upbeat, however.
Core retail sales increased by 1.7% in October, with retail sales also rising by 1.7% in the month.
Service Sector Activity
The all-important services sector saw a moderate slowdown in activity mid-way through the quarter. In November, the Markit Services PMI fell from 58.7 to 57.0. The decline was not enough to raise any major red flags, however.
In October, the market’s preferred ISM Non-Manufacturing PMI had surged from 61.9 to 66.7…
There was no respite on the inflation front. In October, the U.S core annual rate of inflation accelerated from 4.0% to 4.6%.
The FED’s preferred core PCE price index figures revealed a similar trend, with the index rising by 4.1% in October, year-on-year. In September, the index had been up by 3.7%.
GDP numbers for the U.S failed to impress. In the 3rd quarter, the economy expanded by 2.1% falling short of expectations. The economy had expanded by 6.7% in the previous quarter.
For the ECB, no major surprises in the month, with ECB President Lagarde standing by the transitionary view on inflation.
It was a different story for the FED, however. While the minutes delivered largely what the markets had anticipated, FED Chair Powell caught the markets off-guard at the end of the month.
Hawkish chatter in relation to the tapering of bond purchases and inflation weighed heavily on riskier assets.
The Market Movers
For the DAX: It was a bearish month for the auto sector in November. Volkswagen tumbled by 16.16% to lead the way down. Continental also struggled, sliding by 6.58%, with BMW and Daimler falling by 2.48% and by 2.75% respectively.
It was also a bearish month for the banks. Deutsche Bank and Commerzbank ended the month with losses of 3.90% and 1.27% respectively.
From the CAC, it was a bearish month for the banking sector. Credit Agricole slid by 7.44%, with BNP Paribas and Soc Gen ending the month down by 4.87% and 4.44% respectively.
Things were no better for the auto sector. Renault slid by 8.37%, with Stellantis NV tumbling by 13.03%.
Air France-KLM and Airbus SE slumped by 9.71% and by 10.74% respectively.
On the VIX Index
It was a back into the green for the VIX in November, marking just a 4th monthly loss in 11-months.
Reversing a 29.73% rise from October, the VIX surged by 67.22% to end the month at 27.19.
In November, the Dow slid by 3.73%, with S&P500 ending the month down by 0.83%. The NASDAQ bucked the trend, however, rising by 0.25%.
The Month Ahead
Following another pickup in inflationary pressures, the markets will be looking for any adverse impact on consumption. ECB central bank chatter, following the FED Chair’s move away from transitory, will be particularly key ahead of monetary policy decisions.
On the economic data front, consumer spending and private sector PMIs will be key areas of focus alongside consumer and business confidence.
While economic data from the Eurozone will influence, COVID-19 news will also be a key driver in the month. The markets will be looking for updates on vaccine efficacy against the Omicron strain and the timing of effective vaccine rollouts in response to the new strain, should vaccine resilience be materially lower.
Expect any further lockdown measures to combat the spread of COVID-19 in the winter months to also test support.