European Equities: A Week in Review – 06/05/22
It was a bearish week for the European majors in the week ending May-06, 2022.
The DAX fell by 3.00%, with the EuroStoxx600 and the CAC40 seeing losses of 4.55% and 4.21%, respectively.
Disappointing economic data coupled with market angst over inflation and Fed monetary policy left the majors deep in the red.
The global financial markets brushed aside Fed Chair Powell’s attempts to ease concerns of more aggressive policy moves. Lockdown measures in China and the ongoing war in Ukraine continue to disrupt supply chains, pushing oil prices northwards.
The upward trend in crude oil prices and supply chain woes were market negative.
The German economy and private sector PMIs were the areas of focus.
It was a mixed set of numbers, with economic data from Germany disappointing.
In March, German retail sales unexpectedly fell by 0.1% versus a forecasted 0.3% increase. Unemployment also fell more slowly, leaving the German unemployment rate at 5.0%.
Trade, factory orders, and industrial production figures also sounded the alarm bells.
Germany’s trade surplus narrowed from €11.1bn to €3.2bn, with factory orders tumbling by 4.7%.
Industrial production was not much better, sliding by 3.9%, to reflect the impact of the war in Ukraine and lockdown measures in China.
Private sector PMIs were also negative, with the Eurozone’s manufacturing PMI falling to a 15-month low of 55.5. Easing lockdown measures provided some relief, with the Eurozone services PMI rising from 55.6 to 57.7 in April.
From the US
Private sector PMIs were the key stats in the week ahead of nonfarm payroll numbers on Friday.
The numbers were mixed, with private sector PMI figures disappointing.
In April, the ISM Manufacturing PMI fell from 57.1 to 55.4, with the Non-Manufacturing PMI down from 58.3 to 57.1.
Labor market numbers were also dollar negative ahead of the NFP numbers. The ADP reported a 247k increase in nonfarm payrolls for April, falling short of forecasts, and a 479k rise in March.
For the week ending April 29, initial jobless claims increased from 181k to 200k.
On Friday, the stats were market neutral. Nonfarm payrolls increased by 428k in April, following a 428k rise in March. As a result, the US unemployment rate held steady at 3.6%.
While the stats were of interest, the Fed monetary policy decision and forward guidance were the key drivers in the week.
On Wednesday, the Fed delivered a 50 basis point rate hike, which was in line with forecasts. Fed Chair Powell also looked to calm the markets by assuring that 75 basis point hikes would not be on the table.
Relief was brief, with jitters over inflation and Fed policy returning in the second half of the week.
The Market Movers
From the DAX, it was a mixed week for the auto sector. Daimler and Continental tumbled by 7.48% and 7.12%, respectively, with Volkswagen falling by 2.00%. BMW bucked the trend with a 0.70% gain.
It was a bearish week for the banking sector. Deutsche Bank and Commerzbank saw losses of 3.23% and 2.55%, respectively.
From the CAC, it was a mixed week for the banks. BNP Paribas rose by 1.77%, while Credit Agricole and Soc Gen ended the week down by 3.95% and 2.59%, respectively.
It was another mixed week for the French auto sector. Stellantis NV rose by 1.25%, while Renault fell by 1.74%.
Air France-KLM slipped by 0.08%, while Airbus ended the week up 1.86%.
On the VIX Index
A run of four consecutive weeks in the green came to an end for the VIX in the week ending May-06.
Partially reversing an 18.40% jump from the previous week, the VIX fell by 9.61% to end the week at 30.19.
4-days in the red from 5 sessions, which included a 13.09% slide on Wednesday, delivered the downside.
For the week, the NASDAQ fell by 1.54%, with the Dow and the S&P500 seeing losses of 0.24% and 0.21%, respectively.
The Week Ahead
It is a busy week ahead on the Eurozone economic calendar.
ZEW Economic Sentiment figures for Germany and the Eurozone are due on Tuesday.
On Friday, Eurozone industrial production numbers will also influence.
Other stats in the week include finalized member state inflation figures for May that should have a muted impact on the majors.
From the US, inflation is back in the spotlight, with consumer and wholesale inflation figures due out on Wednesday and Thursday.
Another spike in inflation would test support for riskier assets following Fed forward guidance last week.
On Thursday, initial jobless claims will also draw interest ahead of consumer sentiment figures on Friday.
Economic data and updates on lockdown measures from China will also provide direction. Key stats include trade data and inflation figures.
While the stats will influence, news updates on the war in Ukraine and central bank chatter will also need monitoring.