European Equities: A Week in Review – 08/02/20Central bank support and economic data out of the U.S delivered solid gains for the majors. Expect the news wires to influence in the week ahead…
It was a particularly bullish first week of February for the European majors, with the DAX30 rallying by 4.10% to lead the way. The CAC40 and EuroStoxx600 weren’t far behind with gains of 3.85% and 3.22% respectively.
Through the week, 4 consecutive days in the green ahead of a Friday pullback delivered the upside.
Market risk aversion stemming from the coronavirus abated in the week, as the markets responded to support from the PBoC.
While expectations are for the Chinese economy to take a hit as a result of the outbreak, further support from the Chinese government is anticipated.
Adding to the upside in the week was positive data from the U.S, which was another key contributor to market risk appetite.
The gains reversed losses from the final week of January, where the CAC40 and DAX30 had tumbled by 3.62% and 4.38% respectively.
Interestingly, the broad-based market rally came in spite of the continued spread of the coronavirus and rising death toll. Economic data out of the Eurozone did little to pin back the majors, in spite of some particularly disappointing numbers out of Germany.
On the geopolitical risk front, U.S President Trump was acquitted on Wednesday, which was also market positive, though anticipated.
News of China’s plan to cut tariffs on 14th February also supported the rally mid-week.
It was a busy week on the Eurozone economic calendar.
Private sector PMI numbers for January provided support at the start of the week, with Germany’s composite PMI hitting a 5-month high.
The rest of the stats were skewed to the negative, however.
German factory orders slid by 2.1%, with industrial production tumbling by 3.5%.
The only good news was a widening in the trade surplus from €18.5bn to €19.2bn. The widening, however, came off the back of a slide in imports rather than a jump in exports, suggesting waning demand and a likely slide in output.
The weaker demand was certainly more aligned with the factory order numbers than the latest survey-based PMIs…
For the Eurozone, disappointing retail sales figures out of France and Germany contributed to a 1.6% slide in December.
From elsewhere, while private sector growth slowed in China, numbers from the U.S impressed, providing support mid-week.
The Market Movers
From the DAX, it was a bullish week for the auto sector. Continental and Volkswagen led the way, rising by 2.80% and by 2.86% respectively, with Daimler up by 2.76%. BMW saw a more modest gain of 0.76%.
Heavy losses at the end of the week limited the upside.
It was a particularly bullish week for the banking sector, however, with Deutsche Bank rallying by 15.19% and Commerzbank up by 11.73%.
From the CAC, it was also a bullish week for the banks. BNP Paribas and Credit Agricole rallied by 7.89% and by 9.89% respectively, while Soc Gen saw a more modest 4.52% gain.
It was a mixed week for the French auto sector, however. Peugeot rallied by 4.25%, while Renault fell by 0.51%.
The shift in risk appetite in the week also supported airline stocks. Germany’s Lufthansa rallied by 6.39%, with Air France-KLM up by 5.48%.
On the VIX Index
It was back in the red for the VIX Index in the week ending 7th February. Following a 29.4% surge from the previous week, the VIX fell by 17.78% to end the week at 15.5
The broad-based global equity market rally that led to a 3.17% gain in the S&P500 pinned the VIX back in the week.
A combination of PBoC support early in the week, a string of positive economic numbers out of the U.S, Trump’s acquittal and China’s plan to reduce tariffs were the positives.
U.S corporate earnings also provided support in the week to further pressure the VIX.
The Week Ahead
It’s a relatively quiet week ahead on the Eurozone economic calendar. Through the 1st half of the week, economic data is limited to Eurozone industrial production figures for December.
Following some particularly dire numbers out of France and Germany last week, the numbers are unlikely to impress on Wednesday.
The focus will then shift to GDP numbers out of Germany and the Eurozone and the Eurozone’s December trade figures.
Barring deviation from the Eurozone’s 1st estimate GDP numbers, expect Germany’s GDP figures to have the greatest impact.
Private sector PMI numbers last week may have supported the ECB’s view that the Eurozone economy had bottomed out. Other economic indicators out of Germany and other member states, however, painted a different picture.
Outside of the numbers, any chatter on U.S tariffs on the EU would need to be monitored along with updates on the coronavirus.
The markets may have brushed aside the spread last week, but not may be able to ignore should the global spread accelerate.