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Bob Mason
Growing Euro notes arrows over the flag of European Union.

The Majors

It was a bullish week for the European majors, which reversed heavy losses from the final week of January.

The CAC40 rallied and DAX30 rallied by 4.82% and by 4.64% respectively, with the EuroStoxx600 rising by 3.46% in the week.

While economic data disappointed, hopes of a speedier economic recovery fueled the rebound, as the majors returned to the green year-to-date.

Progress towards a $1.9trn relief package remained a key driver. Adding to demand for riskier assets was announcement by the German government to deliver further relief aid.

Geopolitics also played a hand in the week’s gains, with news of former ECB President Draghi looking to form government in Italy delivering support.

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The Stats

It was a busy week on the economic calendar.

In the 1st half of the week, private sector PMIs, GDP, and inflation figures were in focus.

The stats were skewed to the positive, though private sector activity contracted at a quicker pace in January.

The Eurozone’s Composite PMI came in at 47.8, which was revised up from a prelim 47.5, while down from a December 49.1. In December, the Composite had risen from 45.3 to 49.1.

4th quarter GDP numbers fell by less than expected but were also disappointing, however.

In the 4th quarter, the Eurozone economy contracted by 0.7%, following the 3rd quarter’s 12.4% rebound. Economists had forecast a contraction of 1.0%.

Year-on-year, the economy contracted by 5.1%, which was better than a forecasted 5.4% contraction. In the 3rd quarter, the economy had contracted by 4.3%.

In the 2nd half of the week, Eurozone retail sales provided little direction, while German factory orders weighed on the DAX.

Retail sales rose by 2.0% in December, partially reversing a 5.7% slide from November.

German factory orders slid by 1.9%, however, partially reversing a 2.7% jump in November. Economists had forecast a 1% decline.

The German governments agreement to deliver more COVID-19 relief aid cushioned the blow, however.

The ECB’s Economic Bulletin failed to test support in spite of the Bulletin highlighting downside risks.

From the U.S

Economic data was also on the heavier side.

Private sector PMI figures for January and ADP nonfarm employment change figures were in focus in the 1st half of the week.

While the ISM Manufacturing PMI slipped from 60.7 to 58.7, the all-important Non-Manufacturing PMI rose from 57.7 to 58.7.

For January, the ADP reported a 174k rise in nonfarm payrolls, which came in ahead of a forecasted 49k increase. The rise also reversed a 78k fall from December.

Jobless claims for the week ending 29th January were also positive. Initial jobless claims eased back from 812k to 779k in the week.

Labor market numbers on Friday failed to impress, however, with the stats reflecting the continued impact of the COVID-19 pandemic.

According to official government figures, nonfarm payrolls increased by just 49k, following a downwardly revised 227k slide in December.

With the participation rate falling from 61.5% to 61.4%, the unemployment rate fell from 6.7% to 6.3%.

The downward revisions to December NFPs and the low rise in January weighed on the European majors on the day.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Daimler jumped by 15% to lead the way, with Continental rallying by 7.57%. Volkswagen rose by 3.39%, with BMW eking out a 0.27% gain for the week.

It was also a bullish week for the banking sector. Deutsche Bank and Commerzbank ended the week up by 2.28% and by 2.74% respectively.

From the CAC, it was a particularly bullish week for the banks. BNP Paribas and Credit Agricole rallied by 9.6% and by 8.1% respectively, with Soc Gen jumping by 11.2%.

It was also a bullish week for the French auto sector. Renault surged by 14.53%, with Stellantis NV gaining 6.73%.

Air France-KLM rose by a relatively modest 2.89%, while Airbus ending the week up by 12.28%

On the VIX Index

It was back into the red for the VIX. In the week ending 5h February, the VIX slid by 36.93%. Partially reversing a 51.03% jump from the previous week, the VIX ended the week at 20.87.

For the week, NASDAQ rallied by 6.01%, with the Dow and S&P500 ending the week up by 3.89% and by 4.65% respectively.

Corporate earnings and progress towards a $1.9tn relief package on Capitol Hill supported the majors in the week.

The Week Ahead

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

In the 1st half of the week, the German economy is back in focus. December industrial production and trade data are due out on Monday and Tuesday.

Following the disappointing factory orders, expect some market sensitivity to the stats. The German government’s plans to provide further support amidst the ongoing health crisis should should limit the damage, however.

In the 2nd half of the week, industrial production figures for the Eurozone are also due out. We would expect the numbers to have limited impact, however.

From the U.S, it’s a quieter week on the economic calendar.

JOLT’s job openings on Tuesday kick things off. The focus will then shift to January inflation figures ahead of the weekly jobless claim numbers on Thursday.

Prelim February consumer sentiment figures wrap things up on Friday.

Away from the economic calendar, expect COVID-19 news and chatter from Capitol Hill to continue to influence.

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