European Equities: A Week in Review – 11/02/22
It was bullish week for the European majors in the week ending 11th February. The DAX rallied by 2.16%, with the CAC40 and the EuroStoxx600 ending the week up by 0.87% and by 1.61% respectively.
A quiet week on the economic calendar left corporate earnings and EU economic forecasts in focus. Positive earnings results and expectations of a pickup in economic activity later this year supported the majors.
From the U.S, however, another pickup in inflationary pressures forced the markets to price in a more aggressive FED rate hike path. The shift in sentiment limited the upside in the week.
Key stats included German industrial production and trade data for January. The stats were skewed to the negative with industrial production taking an unexpected fall. In January, German industrial production fell by 0.3%, following a 0.2% decline in December.
Germany’s trade data also disappointed, with the trade surplus narrowing from €10.8bn to €6.8bn in January.
While the stats did influence, EU economic forecasts drew plenty of attention on Thursday.
According to the Executive Summary,
- The EU entered the New Year on a weaker footing that previously expected.
- After a soft-patch, the economic expansion is set to pick up pace in the second quarter.
- The euro area economy is expected to grow by 4.0% in 2022 and by 2.7% in 2023.
- Forecasts assume that the impact of the current wave of the pandemic will be short-lived.
- Expectations are also for most of the supply bottlenecks to fade over the year.
- Compared with the Autumn forecasts, inflation projections have been revised up due to persistently high energy prices.
- Inflation in the euro area is projected to peak in Q1 of 2022 and remain above 3% until Q3.
- Forecasts are for inflation to return to below 2% by 2023.
- The balance of risks to the growth outlook is broadly even.
- Looking beyond short-term uncertainties, improving labor market conditions, large accumulated savings, favorable financing conditions, and the full deployment of the Recovery and Resilience Facility (RFF) are supportive of an extended expansionary phase.
From the U.S
Inflation and jobless claims were key stats in the week.
In January, the U.S annual rate of inflation accelerated from 7.0% to 7.5%. The annual rate of inflation picked up from 5.5% to 6.0%. The numbers weighed on riskier assets in the 2nd half of the week.
Jobless claims were market positive, however. In the week ending 4th February, initial jobless claims fell from 239k to 223k. Economists had forecast claims of 230k.
All in all, the stats continued to support a more aggressive rate path trajectory for the FED. With concerns over the effect of inflation on consumption, consumer sentiment figures also drew attention on Friday.
In February, the Michigan Consumer Sentiment Index fell from 67.2 to 61.7. Economists had forecast an increase to 67.5.
The Market Movers
From the DAX, it was a bullish week for the auto sector. Volkswagen surged by 7.10% on hopes of a Porsche IPO, with BMW and Continental rallying by 6.09% and by 6.87% respectively. Daimler saw more modest gain of 3.44%.
It was also a bullish week for the banking sector. Deutsche Bank rallied by 5.58%, with Commerzbank rising by 1.26%.
From the CAC, it was a bullish week for the banks. Soc Gen rallied by 5.7% to lead the way, with BNP Paribas and Credit Agricole ending the week with gains of 0.93% and 3.53% respectively.
The French auto sector found much-needed support. Stellantis NV rose by 1.87%, with Renault rallying by 4.81%.
Air France-KLM ended the week up by 9.7%, with Airbus gaining 7.41%.
On the VIX Index
It was back into the green for the VIX in the week ending 11th February, marking a 2nd rise in 5 weeks.
Reversing a 16.05% slide from the previous week, the VIX jumped by 17.83% to end the week at 27.36.
2-days in the red from 5 sessions, which included a 19.79% surge on Thursday and a 14.43% rise on Friday delivered the upside.
For the week, the NASDAQ fell by 2.18%, with the Dow and the S&P500 ending the week down by 1.00% and by 1.82% respectively.
The Week Ahead
It is busier week ahead on the Eurozone economic calendar. Key stats for the Eurozone and economic sentiment figures for Germany and the Eurozone will be in focus. On Tuesday, 4th quarter GDP and trade data for the Eurozone will draw interest along with ZEW Economic Sentiment figures for Germany and the Eurozone.
On Wednesday, Eurozone industrial production figures will then provide direction. Other stats in the week include finalized January inflation numbers for member states. We don’t expect these to have a material impact on the majors, however.
From the U.S, wholesale inflation, retail sales, and weekly jobless claims figures will also provide direction in the week.
From elsewhere, inflation numbers from China will also draw interest on Wednesday. Following the U.S inflation figures last week, another pickup in inflationary pressure would test support for riskier assets.