European Equities: A Week in Review – 07/01/22

The Majors

It was a mixed start to the year for the European majors in the week ending 7^th January.

The EuroStoxx600 slipped by 0.40%, while the CAC40 and the DAX30 ended the week up by 0.40% and by 0.91% respectively.

It was a choppy week for the majors, which kicked off the year with strong gains early in the week. Continued reports of Omicron symptoms being milder, with fewer hospitalizations were market positive. Economic data from the Eurozone were skewed to the negative, however, with inflationary pressures lingering.

While milder, surging COVID-19 cases throughout the week coupled with disappointing stats tested support for the majors later in the week.

Adding further pressure were the FOMC meeting minutes, which caught the markets off-guard. Talk of the need to address inflation with sooner than expected rate hikes and the need to reduce the balance sheet weighed.

The Stats

Private sector PMIs for the Eurozone and member states, inflation, and the German economy were in focus.

Manufacturing sector growth remained relatively stable in December, while the services sector took a hit.

The Eurozone’s manufacturing PMI fell from 58.4 to 58.0, while the services PMI declined from 55.9 to 53.1. As a result, the Eurozone Composite PMI fell from 55.4 to a 9-month low 53.3.

For Germany, retail sales, unemployment, and industrial production figures were all upbeat for November. With the sharp rise in Omicron cases late in the year, however, the numbers had a relatively muted impact on the majors. A sharp narrowing in Germany’s trade surplus also failed to move the dial.

On the inflation front, however, the prelim numbers pointed to another pickup in inflationary pressure in December.

While France’s annual rate of inflation held steady at 2.8%, Germany’s picked up from 5.2% to 5.3%. Italy’s annual rate of inflation accelerated from 3.7% to 3.9%. As a result, the Eurozone’s annual rate of inflation ticked up from 4.9% to 5.0%. The uptick will likely put more pressure on the ECB to make a move, particularly after the FED’s shift in stance on interest rates.

From the U.S

Private sector PMIs and labor market stats were in focus ahead of Friday’s all-important nonfarm payrolls.

The stats were skewed to the negative, with private sector growth slowing. In December, the ISM Manufacturing PMI fell from 61.1 to 58.7. More significantly, the ISM Non-Manufacturing PMI declined from 69.1 to 62.0.

Labor market stats were also skewed to the negative in the week. In November, JOLT’s job openings stood at 10.562m, which was down from 11.091m in October. Initial jobless claims increased from 200k to 207k in the week ending 31^st December.

More significantly, however, was a modest 199k increase in nonfarm payrolls in December. Economists had forecast a 400k rise. The markets were likely expecting more following an 800k increase in nonfarm payrolls according to the ADP. In spite of the lower number, the U.S unemployment rate fell from 4.2% to 3.9%.

On the monetary policy front, the FOMC meeting minutes were also in focus mid-week. The global equity markets responded negatively to more hawkish minutes than expected. The minutes revealed that the FED may need to lift rates sooner than had been previously priced in.

The Market Movers

From the DAX, it was a bullish week for the auto sector. BMW and Daimler rallied by 8.03% and by 8.83% respectively to lead the way. Continental and Volkswagen ended the week up by 3.87% and by 5.78% respectively.

It was a particularly bullish week for the banking sector. Deutsche Bank rallied by 12.23%, with Commerzbank surging by 17.49%.

From the CAC, it was a bullish week for the banks. Soc Gen rallied by 9.93%, with BNP Paribas and Credit Agricole ending the week with gains of 6.14% and 7.25% respectively.

The French auto sector also had a bullish week. Stellantis NV and Renault rose by 7.94% and by 5.53% respectively.

Air France-KLM ended the week up by 9.76%, with Airbus rising by 4.75%.

On the VIX Index

It was back into the green for the VIX in the week ending 7^th January, marking a 5^th rise in 8-weeks.

Reversing a 4.12% decline from the previous week, the VIX rose by 8.94% to end the week at 18.76.

2-days in the green from 5 sessions, which included an FOMC driven 16.68% jump on Wednesday, delivered the upside.

For the week, the NASDAQ slid by 4.53%, with the Dow and the S&P500 ending the week down by 0.29% and by 1.87% respectively.

The Week Ahead

It’s quieter week ahead on the Eurozone economic calendar. Key stats include industrial production, trade, and unemployment figures for the Eurozone. Expect the industrial production and trade data to draw the greatest interest.

From the U.S, inflation figures mid-week, together with the weekly jobless claims on Thursday and retail sales on Friday will also influence.

From Elsewhere

Inflation figures from China will also draw plenty of interest on Wednesday. Market sensitivity to inflation remains as the FED gets ready for lift-off.

Away from the Economic Calendar

News updates on COVID-19 will need continued monitoring, with any talk of new strains the downside risk for the majors.