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European Equities: A Week in Review – 04/01/20

It was a mixed week for the majors, with U.S airstrikes in the Middle East offsetting positive sentiment towards the U.S and China trade agreement.
Bob Mason
Stock market down

The Majors

It was a mixed start to the year for the European majors in the week ending 3rd January, with the CAC40 rising by 0.11% to lead the way.

The DAX30 and EuroStoxx600 saw red in the shortened week, however. The DAX30 fell by 0.88%, with the EuroStoxx600 ending the week down by 0.34%.

For the DAX30, a 1.25% slide on Friday did the damage, with the EuroStoxx600 falling by 0.33% on the day. The CAC40 managed to eke out a 0.04% gain to hold onto positive territory.

Through the early part of the week, positive sentiment towards news of the U.S and China signing of the phase 1 trade agreement provided support.

Over the holidays, Trump had announced that the U.S and China would sign the trade agreement on 15th January.

There was also support from news of the PBoC planning to lower the Reserve Requirement Ratio to support the Chinese economy.

On Friday, however, market reaction to U.S airstrikes in the Middle East led to a pullback.

The Stats

It was a busy week on the Eurozone economic calendar. Key stats included manufacturing PMI numbers on Thursday and German employment figures on Friday.

From the manufacturing sector, upward revisions to December PMI numbers out of France, Germany and the Eurozone were positives.

A quicker pace of contraction in Italy’s manufacturing sector was negative, however.

The devil was in the details for the Eurozone PMI, however, with new orders falling at a quicker pace and employment falling at the fastest pace since records began.

On Friday, employment numbers out of Germany also failed to impress, with unemployment rising by 8k. Economists had forecasted a 2k increase…

Prelim inflation numbers out of France and Germany had a muted impact, in spite of an uptick in inflationary pressures.

The Market Movers

From the DAX, it was another bearish week for the auto sector. Daimler led the way, falling by 1.73%, with Continental down by 1.34%, BMW, and Volkswagen saw more modest losses of 0.38% and 0.14% respectively.

The losses came off the back of a Friday sell-off that saw Continental and Daimler slide by 3.17% and 2.57% respectively. BMW and Volkswagen also saw heavy losses, falling by 1.83% and by 2.66% respectively.

It was also a bullish week for the banking sector, however, in spite of a Friday pullback. Deutsche Bank rose by 5.38%, Commerzbank up by 6.43%. Impressive gains from Thursday contributed to the upside in the week.

From the CAC, it was a mixed week for the banks. BNP Paribas fell by 0.06%, while Credit Agricole and Soc Gen rose by 0.61% and 0.80% respectively. A 1.19% slide on Friday left BNP Paribas in the red for the week.

It was a bearish week for the French auto sector, however, with Peugeot and Renault falling by 2.29% and by 4.14% respectively.

On the VIX Index

The VIX Index rose by 4.39% in the week ending 3rd January 2020. Following on from a 6.17 rise from the previous, the VIX ended the week at 14.0.

It was a mixed week, with the U.S majors finding strong support in the first half of the week to pin the VIX back to sub-13 levels.

Positive sentiment towards the U.S – China trade agreement had pinned the VIX back ahead of a Friday bounce back. On Friday, the VIX jumped by 12.4% to deliver the upside in the week.

Risk aversion hit the broader markets as investors reacted to U.S military action in the Middle East.

The Week Ahead

It’s a busy week on the Eurozone economic calendar. On Monday, German retail sales figures and December service sector PMI numbers for the Eurozone and member states are in focus.

Eurozone retail sales figures on Tuesday will also provide direction ahead of German factory orders and industrial production figures due out on Wednesday and Thursday.

Expect unemployment numbers from the Eurozone on Thursday to also influence.

From elsewhere

China’s Caixin service sector PMI for December will also influence at the start of the week.

From the U.S, the ISM Non-Manufacturing PMI and factory orders on Tuesday will also provide direction. The ADP Nonfarm Employment Change and labor market figures on Wednesday and Friday will have a greater influence, however.

Outside the numbers, while sentiment towards trade remains positive, action in the Middle East could overshadow the stats in the week.

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