European Equities: A Week in Review – 04/12/20

The Majors

It was a mixed week for the European majors in the week ending 4^th December. The CAC40 and EuroStoxx 600 rose by 0.20% and by 0.21% respectively, while the DAX30 fell by 0.28%.

Negative sentiment towards the Eurozone economic outlook weighed on the majors in the week. While hopes of a COVID-19 vaccine continued to provide support, Brexit uncertainty and some profit-taking had also pinned the majors back.

At the end of the week, disappointing labor market data from the U.S fuelled expectations of stimulus, supporting a bullish end to the week.

There were mixed messages on the Brexit front, however. While EU negotiators talked of a chance of a deal over the weekend, the British team continued to highlight challenges.

The Stats

It was a busy week on the economic calendar.

In the 1^st half of the week, inflation and private sector PMI numbers disappointed.

Deflationary pressures continued to hit the Eurozone and member states according to prelim November figures.

Of greater concern, however, was a contraction in France and Spain’s manufacturing sectors. The only good news was that Germany continued to see solid growth.

Supported by German manufacturing sector activity, the Eurozone Manufacturing PMI saw a modest fall from 54.8 to 53.8 in November. With Germany’s manufacturing sector avoiding a contraction, unemployment numbers impressed. In November, Germany’s unemployment rate slipped from 6.2% to 6.1%.

Mid-week, German retail sales, and unemployment figures from Spain and the Eurozone had a muted impact ahead of service sector PMIs on Thursday.

Service sector PMIs for November once more reflected the effects of lockdown measures, however.

France, Germany, Italy, and Spain saw a contraction in service sector activity. France got hit the most, with the Services PMI sliding from 46.5 to 38.8.

Dire PMI numbers left the Eurozone’s Composite PMI down at 45.3. In October, the PMI had stood at 50.0.

Wrapping up the week were factory order figures from Germany. In October, factory orders rose by 2.9%, following on from a 1.1% increase in September.

From the U.S

In the 1^st half of the week, ISM Manufacturing PMI figures for November disappointed, with the PMI falling from 59.3 to 57.5.

Mid-week, ADP Nonfarm Employment Change figures for November also disappointed, with the ADP reporting just 307k nonfarm payrolls added.

The focus then shifted to Thursday. Initial jobless claims fell back from 787k to 712k in the week ending 27^th November.

On the negative, however, was a fall in the ISM Services PMI from 56.6 to 55.9 in November.

Wrapping things up on Friday were nonfarm payroll figures and the U.S unemployment rate for November.

According to government figures, nonfarm payrolls rose by just 245k, falling well short of a forecasted 469k increase. In October, nonfarm payrolls had risen by 638k. While modest, the increase led to a fall in the unemployment rate from 8.9% to 8.5%. Some of the declines, however, were attributed to a fall in the participation rate from 65.1% to 61.5%.

From elsewhere

Private sector PMI figures from China continued to impress.

The NBS Manufacturing PMI and Non-Manufacturing PMIs both reported a pickup in private sector activity in November.

For the markets, the all-important Caixin Manufacturing PMI increased from 53.6 to 54.9, with the Services PMI rising from 56.8 to 57.8.

While impressive, the economic recovery continued to be fueled by domestic demand, as the likes of the EU and the U.S grappled with the COVID-19 pandemic.

The Market Movers

From the DAX, it was another mixed week for the auto sector. BMW and Daimler saw gains of 2.59% and 2.50% respectively. Continental and Volkswagen fell by 0.34% and by 1.12% respectively.

It was another bullish week for the banking sector, however. Commerzbank and Deutsche Bank ending the week with gains of 2.41% and 2.43% respectively.

From the CAC, it was yet another bullish week for the banks. BNP Paribas and Soc Gen rose by 4.36% and by 5.54% respectively, with Credit Agricole rallying by 12.07%.

The French auto sector found further support. Peugeot and Renault ended the week up by 3.50% and by 4.69% respectively.

Air France-KLM gave up some of last week’s 27.78% gain, falling by 2.78%, while Airbus rose by 6.93%.

On the VIX Index

It was a 2^nd consecutive week in the red for the VIX, marking a 4^th weekly decline in 5-weeks. In the week ending 4^th December, the VIX fell by 0.24%. Following a 12.07% slide from the previous week, the VIX ended the week at 20.79.

For the week, the NASDAQ rose by 2.12%, with the Dow and S&P500 seeing gains of 1.03% and 1.67% respectively.

The Week Ahead

It’s a relatively busy week ahead on the Eurozone economic calendar.

In the 1^st half of the week, German industrial production and ZEW economic sentiment figures will garner plenty of interest.

Finalized 3^rd quarter GDP and economic sentiment figures for the Eurozone will likely have a muted impact on the majors.

Mid-week, German trade data will draw some attention ahead of the ECB’s December monetary policy decision on Thursday.

The markets are expecting a move. It remains to be seen how far the ECB will go with a vaccine en route. Key will be the ECB’s economic forecasts that will also be rolled out.

From the U.S, it’s a relatively quiet week ahead on the economic data front. Key stats include JOLTs job openings, inflation, the weekly jobless claims, and consumer sentiment figures.

While the stats will provide direction, much will hinge on the FDA and the COVID-19 vaccine reviews. For the markets, production figures and logistics will also need tracking in the week.

Out of China, trade data and inflation figures for November will also draw interest.

Away from the economic calendar, COVID-19 news updates and Brexit talks will need monitoring. Chatter from Capitol Hill will also influence. Late last week there was some talk of progress towards a stimulus package…