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European Equities: A Week in Review – 07/12/19

It was a tough week for the European majors. It could have been worse, however, had it not been for U.S data on Friday…
Bob Mason
economy up and down

The Majors

It was a bearish week for the European majors in the week ending 6th December, with the CAC40 falling by 0.56% to lead the way down.

Things were not much better for the DAX30, which fell by 0.53%, while the EuroStoxx600 slipped by just 0.02%.

The losses came in spite of a bullish end to the week that saw the CAC40 and EuroStoxx600 rally by 1.21% and by 1.16% respectively.

Disappointing industrial production figures out of Germany left the DAX30 with a more modest 0.86% gain on the day.

Market sentiment towards the prospects of a U.S – China phase 1 agreement provided support on Friday, after having sunk the markets at the start of the week.

On the economic data front, a jump in U.S nonfarm payrolls and wage growth ultimately delivered the Friday bounce, however.

The Stats

It was a busy week on the Eurozone economic calendar.

In the 1st half of the week, the focus was on November private sector PMI figures out of China, the Eurozone, and the U.S.

While the PMI numbers out of China had provided support, the Eurozone and U.S PMI figures were far from impressive.

The stats coincided with negative chatter on trade in the 1st half, with the U.S administration threatening tariffs on all French goods. On the prospects of a U.S – China phase 1 agreement, Trump had also doused expectations of a pre-Christmas deal.

In the 2nd half of the week, things didn’t get much better on the data front, with German and Eurozone retail sales disappointing. While the markets have been able to stomach weak manufacturing sector figures, weak consumer spending is a different proposition…

That sentiment was reflected by a slide in factory orders and industrial production figures out of Germany that had a relatively muted impact on the majors.

On Friday, U.S nonfarm payroll and wage growth figures, however, did have a material impact. Impressive figures fuelled a rebound in both the European and U.S majors.

Nonfarm payrolls jumped by 266k, with wages rising by 3.1% in November. Both came in ahead of expectations and points to strong consumer demand in the months ahead…

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental and Daimler fell by 0.88% and by 3.36% respectively. BMW and Volkswagen found support, however, with the pair up by 0.70% and 0.57% respectively.

It was a bearish week for the banking sector, however. Deutsche Bank fell by 0.91%, with Commerzbank down by 1.14%.

From the CAC, it was a mixed week for the banks. Credit Agricole and Soc Gen rose by 1.25% and by 2.80% respectively. BNP Paribas bucked the trend, falling by 0.06%, the loss coming in spite of a 1.35% gain on Friday.

French auto sector took another hit in the week, with Peugeot and Renault falling by 1.87% and by 3.76% respectively.

The U.S. threat of tariffs on all French goods certainly didn’t help.

On the VIX Index

The VIX Index rose by 7.92% in the week ending 6th December. Following a 2.27% gain from the previous week, the VIX ended the week at 13.6.

A choppy week for the markets saw the VIX jump by 18.15% on Monday. The jump came in response to negative chatter on trade. This was followed up by a 7% gain on Tuesday that ultimately delivered the upside in the week.

In the 2nd half of the week, a shift in sentiment towards trade and the particularly impressive labor market figures out of the U.S limited the upside in the VIX.

The Week Ahead

It’s a relatively busy week on the Eurozone economic calendar. Through the 1st half of the week, German trade data and business sentiment figures for Germany and the Eurozone are due out

Barring dire trade figures, expect the sentiment figures to have the greatest influence on Tuesday. Following disappointing industrial production figures out of Germany last week, a fall in Eurozone industrial production wouldn’t be a surprise…

Industrial production figures are due out on Thursday.

On Thursday, the focus will be on the ECB and ECB President Lagarde, however. Economic indicators going into the 4th quarter have not been great, which raises the question of what’s next from the ECB…

Finalized inflation numbers from France, Germany, and Spain due out in the week will unlikely influence.

From elsewhere, expect economic data from the U.S and, more importantly, the FOMC economic projections from Wednesday to also influence.

On the geopolitical front, updates from China and the U.S in the early part of the week will influence. In the 2nd half of the week, expect the European majors to respond to the UK general election. Results will start trickling in overnight on Thursday…

A Tory Party loss would extend Britain’s membership with the EU.  This would also raise plenty of uncertainty over what lies ahead for the UK economy, however.

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