European Equities: A Week in Review – 09/05/20

The Majors

It was a mixed week for the European majors in the week ending 8^th May. The DAX30 and EuroStoxx600 rose by 0.39% and by 1.08% respectively, while the CAC40 slipped by 0.49%.

Economic data from the Eurozone did limit the upside in the week. Corporate earnings and market sentiment towards the easing in lockdown measures ultimately delivered the upside in the week.

It did take a bullish end to the week to deliver the gains for the DAX30 and EuroStoxx600, however, and limit the downside for the CAC40.

The markets had hit deep red at the start of the week in response to rising tensions between the U.S and China. News of China looking to calm the situation late in the week and of Washington and Beijing looking to reach an agreement on the phase 1 trade deal were certainly positives.

From the previous weekend, the U.S President had threatened China with tariffs and sanctions that had led to the Monday tumble. It does remain to be seen, however, whether Trump will continue to blame China for the COVID-19 woes in the U.S…

Adding to the upside in the week, was another jump in crude oil prices, driven by a pullback in production and positive stats out of China.

The Stats

It was a busy week on the Eurozone economic calendar. Key stats included April private sector PMIs, Eurozone retail sales figures, and employment numbers from France and Spain.

From Germany, March factory orders, industrial production, and trade figures were also in focus.

From Italy and Spain, the Manufacturing and Service sectors saw activity take a dive in April. While aligned with the prelim numbers from France, Germany, and the Eurozone, Spain’s service sector PMI was particularly alarming.

The Eurozone’s composite PMI came in at 13.6, revised up from a prelim 13.5, while down from 29.7 in March.

In spite of the dire numbers, the downside for majors could have been far more significant.

Stats from Germany and factory orders, in particular, did cause some harm, however, with orders slumping by a record of 15.6%.

We’ve seen plenty of records broken for the wrong reasons of late and this was one that pointed to a more deep-rooted recession.

By Thursday, however, market resilience was evident, with a 9.2% slide in German industrial production having little impact.

On the day, better than expected trade date from China and corporate earnings muted the impact of the stats. Even another 3m jump in U.S jobless claims failed to sink the majors ahead of Friday’s nonfarm payrolls…

At the end of the week, a narrowing of Germany’s trade surplus to just €12.8bn also had little impact, with trade news delivering on Friday…

U.S nonfarm payrolls came in better than forecast, as did the unemployment rate. A 20.5m fall in payrolls and an unemployment rate of 14.7% was not enough to spook the markets.

Having used threats against China to distract the markets the previous weekend, it was pushing trade talks on Friday that distracted the markets from quite dire numbers.

The Market Movers

From the DAX, it was a mixed week for the auto sector, in spite of a bullish end to the week, driven by trade talks. Continental and Volkswagen rose by 1.96% and by 0.78%, while BMW and Daimler fell by 5.31% and by 0.47% respectively.

It was a bearish week for the banking sector, however. Commerzbank and Deutsche Bank slid by 3.85% and by 2.66% respectively.

Lufthansa joined the banks in the red, with a 4.16% slide, which partially reversed a 13.41% breakout from the week prior.

From the CAC, it was also a mixed week for the banks. BNP Paribas eked out a 0.52% gain, while Credit Agricole and Soc Gen fell by 0.27% and by 6.94% respectively.

It was also a mixed bag for the French auto sector, with Renault sliding by 3.20%, while Peugeot ending the week up by 2.75%.

Air France-KLM and Airbus struggled in the week, with the pair sliding by 9.34% and 3.13% respectively.

On the VIX Index

It was back into the red for the VIX that had broken a run of 5 consecutive weekly losses in the week prior. In the week ending 8^th May, the VIX slid by 24.76%. Reversing a 3.51% gain from the previous week, the VIX ended the week at 28.0.

Economic data from the U.S failed to raise the fear level in the week, despite the continued surge in jobless claims.

Rising crude oil prices, the easing of lockdown measures, and trade talks between the U.S and China supported the U.S equity markets.

Corporate earnings added to the upside and the NASDAQ in particular.

The S&P500 ended the week up by 3.50%, with the Dow and NASDAQ gaining 2.56% and 6.00% respectively.

The Week Ahead

It’s a relatively busy week ahead on the Eurozone economic calendar. Key stats include March industrial production and trade data for the Eurozone and, more importantly, 1^st quarter GDP numbers.

On Friday, Germany’s 1^st estimate GDP figures are due out ahead of 2^nd estimate figures for the Eurozone.

Expect market sensitivity to the numbers. Germany’s contraction is unlikely to be as dire as those seen in France, Italy, and Spain, however.

Finalized April inflation figures are also due out of Member states and the Eurozone throughout the week. These will have a muted impact on the majors.

From elsewhere, expect industrial production and fixed asset investment numbers from China will influence on Friday.

With U.S stats on the heavier side, the weekly jobless claims on Thursday and April retail sales figures on Friday will need attention.

Outside of the numbers, the markets will be looking for positive updates on trade talks between the U.S and China.

There is also COVID-19 news to monitor throughout the week. Any hint of a pause in easing lockdown measures would be negative for the majors.