European Equities: A Week in Review – 11/12/20

The Majors

It was a bearish week for the European majors in the week ending 11^th December. The CAC40 and DAX30 slid by 1.81% and by 1.39% respectively, with the EuroStoxx 600 falling by 0.99% to end a 5-week winning streak.

Negative sentiment towards Brexit and the impact of the COVID-19 pandemic on the economy weighed on the majors.

While COVID-19 vaccine news had provided recent support, the ECB delivered a gloomy economic outlook for 2021, which weighed on the majors.

Failure to make progress on Brexit ahead of a Wednesday imposed Sunday deadline also pressured the majors. At the end of the week, both sides began to talk of the likelihood of a no-deal Brexit, removing hopes of a last-ditch deal.

From the U.S, there was a lack of progress on Capitol Hill to deliver a stimulus package, with disappointing labor market numbers adding to the market angst.

The Stats

It was a relatively busy week on the economic calendar.

In the 1^st half of the week, German industrial production and German and Eurozone economic sentiment figures were in focus.

The stats were skewed to the positive. Industrial production rose by 3.2% in October, following a 1.6% increase in September.

COVID-19 vaccine news shifted sentiment towards the economic outlook ahead of the ECB press conference on Thursday.

Germany’s ZEW Economic Sentiment Index rose from 39.0 to 55.0, with the Eurozone’s rising from 32.8 to 54.4 in December.

Mid-week, October trade data from Germany failed to impress, with exports rising by just 0.8% and imports by 0.4%.

On the monetary policy front, the ECB delivered further support, by increasing the PEPP by €500 billion. This was largely expected, leaving the market response muted.

A downward revision to 2021 growth forecasts weighed on the European majors on Thursday, however. The ECB revised growth for 2021 down from 5% to 3.9%.

At the end of the week, finalized inflation figures from Spain and Germany had a muted impact on the majors.

From the U.S

Labor market figures raised more red flags on Thursday, with initial jobless claims jumping to 853k in the week ending 4^th December. In the week prior, initial jobless claims had stood at 716k.

At the end of the week, prelim consumer sentiment figures for December were in focus. The Michigan Consumer Sentiment Index rose from 76.9 to 81.4, with the expectations index increasing from 70.5 to 74.7.

The pickup in sentiment failed to support the European majors, however.

From elsewhere

Trade data from China failed to support the majors at the start of the week, in spite of a surge in exports and the trade surplus.

The Market Movers

From the DAX, it was a bearish week for the auto sector. BMW slid by 6.17%, with Continental and Daimler seeing losses of 5.69% and 5.48% respectively. Volkswagen fell by a more modest 3.51% in the week.

It was a particularly bearish week for the banking sector, however. Commerzbank and Deutsche Bank ended the week down by 7.97% and by 9.58% respectively.

From the CAC, it was a bearish week for the banks. BNP Paribas and Credit Agricole fell by 5.73% and by 6.79% respectively, with Soc Gen sliding by 8.8%.

It was a mixed week for the French auto sector, however. Peugeot eked out a 0.19% gain, while Renault fell by a relatively modest 1.79%

Air France-KLM slid by 5.94%, with Airbus ending the week down by 4.21%.

On the VIX Index

It was back into the green after 2 consecutive weeks in the red for the VIX. In the week ending 11^th December, the VIX rose by 12.12%. Reversing a 0.24% decline from the previous week, the VIX ended the week at 23.31.

A continued spike in new COVID-19 cases, disappointing labor market numbers, and a failure to deliver a stimulus package supported the pickup in the VIX.

For the week, S&P500 fell by 0.96%, with the Dow and the NASDAQ seeing losses of 0.57% and 0.69% respectively.

The majors would have seen heavier losses had it not been for a last gasp approval to extend federal funding on Friday. With a government shutdown avoided, lawmakers will have more time to negotiate an essential COVID-19 relief package.

The Week Ahead

It’s a busy week ahead on the Eurozone economic calendar.

Key stats in the week include prelim December private sector PMI figures for France, Germany, and the Eurozone.

With the COVID-19 pandemic continuing to plague the Eurozone, the numbers will draw plenty of attention.

At the end of the week, Germany’s IFO Business Climate Index figures for December will also draw interest. Expect any weaker numbers to weigh on the majors on Friday.

From the U.S, it’s a busier week, with November retail sales and December prelim PMI numbers in focus through to Wednesday.

In the 2^nd half of the week, the Philly FED Manufacturing Index for December and the weekly jobless claims figures will also influence.

On the monetary policy front, the FED is also in action on Wednesday. Further easing is expected, while the FED will likely leave interest rates unchanged.

Expect the FOMC Economic Projections, Interest Rate Projections, rate statement, and press conference to influence moves going into the Thursday open.

Out of China, new loans, fixed asset investment, industrial production, retail sales, and unemployment figures will also influence in the early part of the week.

Away from the economic calendar, COVID-19 and Brexit news from the weekend will influence. From Capitol Hill, any updates on stimulus talks will also draw attention.