European Equities: A Week in Review – 07/03/20

The Majors

It was another tumultuous week for the European majors, which ended the week in the red following an end of week meltdown.

After a bearish start to the week, the European majors had found support off the back of the promise of government fiscal policy and monetary policy support.

The upward momentum from mid-week reversed, however, with 2-consecutive days in the red leaving the majors in the red.

Questions remain over how far the governments will go so early into the spread of the virus and whether monetary policy easing will have any positive influence.

One certainty throughout the week was the fact that the coronavirus continued to spread and that travel restrictions widened. When considering Asia and the spread since January, the virus may well linger for longer.

For the week, the CAC40 slid by 3.22%, with the DAX30 and EuroStoxx600 falling by 2.93% and 2.36% respectively.

The Stats

It was a busy week on the Eurozone economic calendar.

Key stats included private sector PMI numbers from the Eurozone and member states on Monday and Wednesday.

Retail sales figures from Germany and the Eurozone and inflation and unemployment numbers were also in focus.

There was a pickup in private sector activity in February, with the Eurozone Composite PMI rising from 51.3 to 51.6.

These were February numbers, however, which were yet to reflect the impact of the coronavirus on the Eurozone economy.

With private sector activity seeing a marginal pickup in activity, retail sales were also relatively lackluster in January.

At the end of the week, German factory orders also failed to provide support, in spite of a 5.5% jump in January. A grim outlook suggests that a downward trend is likely to ensue.

All in all, the stats were not good enough to warrant a breakout, with a stronger EUR adding to further pressure on the equity markets.

From elsewhere, a FED emergency rate cut failed to drive demand for riskier assets, with economic data out of China also spooking the markets.

Private sector activity in China contracted at the quickest pace in the survey’s history in February…

The Market Movers

From the DAX, it was another bearish week for the auto sector. Continental and Daimler led the way down, sliding by 15.07% and by 7.4%. BMW and Volkswagen saw more modest losses of 1.95% and 1.00% respectively.

It was a particularly bearish week for the banking sector, with Deutsche Bank and Commerzbank tumbling by 11.43% and 17.46% respectively.

From the CAC, things were not much better for the banks. BNP Paribas slid by 12.04%, while Credit Agricole and Soc Gen tumbled by 13.97% and by 16.37% respectively.

The French auto sector took a more modest hit, with Renault and Peugeot sliding by 11.70% and 7.71% respectively.

Travel and tourism stocks continued to struggle. While Germany’s Lufthansa fell by just 0.77%, Air France-KLM ended the week down by 17.37%.

The slide in airline stocks and the impact of the coronavirus on the travel and tourism industry was evidenced in the performance of Airbus in the week. A 7.63% slide on Friday left Airbus down by 17.44%. Travel restrictions and the grounding of fleets led to reports of Airbus receiving zero orders in February. As of 29^th February, aircraft outstanding orders reportedly stood at 7,670.

Some airlines have also looked to defer delivers near-term…

On the VIX Index

The VIX rose by 5.86% on Friday. Following on from a 23.85% surge on Thursday, the VIX ended the week up 4.56% at 41.9. In the previous week, the VIX had surged by 134.84%.

Risk aversion through the 2^nd half of the week provided the VIX with support as investors continued to respond to the spread of the virus. It was also the VIX’s first visit to 50 levels since 6^th February 2018.

The upside in the VIX came in spite of the S&P500 rising by 0.61% for the week.

The Week Ahead

It’s a quieter week ahead on the Eurozone economic calendar. Key stats include German industrial production and trade data on Monday.

Since these are January figures any major support for the majors would be limited ahead of the ECB monetary policy decision on Thursday.

The markets are expecting monetary policy easing, in spite of ECB President Lagarde talking down any support from the ECB in late February…

Economists, however, have forecasted a hold on monetary policy. The ECB President will likely seize the opportunity to nudge member states to loosen the purse strings. Lagarde had called for fiscal support at her first press conference, so we can expect more of the same.

Expect a hold on policy and a refusal by the likes of Germany to loosen the purse strings to weigh on the majors.

From elsewhere, trade data out of China on Sunday will set the tone going into the week…