European Equities: A Week in Review – 13/05/22

The Majors

It was a bullish week for the European majors in the week ending May-13, 2022.

The DAX rallied by 2.59%, with the EuroStoxx600 and the CAC40 seeing gains of 0.83% and 1.67%, respectively. A Friday Fed Chair Powell induced rally pulled the CAC40 and the EuroStoxx600 into positive territory for the week.

A quiet economic calendar left the markets to consider the impact of persistent inflationary pressure, China’s lockdown measures, and the war in Ukraine on the economic outlook.

While US inflationary pressures softened in April, fears of a global recession spiked in the week. Adding to the market angst were concerns about a more aggressive Fed rate path to policy normalization.

The negative sentiment hit the global financial markets, with the European majors unable to avoid the fallout.

With the war in Ukraine showing no signs of ending and China grappling with the latest COVID-19 breakout, conditions could worsen.

Amidst recession fears, Fed Chair Powell delivered much-needed market support on Friday, however. The Fed Chair assured the markets that larger rate hikes remained off the table despite the latest US inflation numbers. For the DAX, it was the first weekly rise in six weeks.

The Stats

ZEW Economic Sentiment figures for Germany and the Eurozone and Eurozone industrial production figures were the key stats.

In May, economic sentiment improved, with Germany’s ZEW Economic Sentiment Index up from -41.0 to -34.3. The Eurozone’s ZEW Economic Sentiment Index climbed from -43.0 to -29.5.

At the end of the week, industrial production disappointed, however.

In March, industrial production fell by 1.8%. Production rose by a modest 0.5% in February.

From the US

Inflation was back in focus, which caused market turbulence mid-week.

In April, the annual rate of inflation softened from 8.5% to 8.3% versus a forecasted 8.1%. The core annual rate of inflation softened from 6.5% to 6.2%. While softer, inflation was stronger than anticipated, supporting the more hawkish sentiment towards Fed monetary policy.

On Thursday, wholesale inflation also drew attention. In the month of April, the core producer price index increased by 0.4% after a 1.2% rise in March.

Initial jobless claims had a muted impact despite a rise from 202k to 203k in the week ending May-06.

On the monetary policy front, Fed Chair Powell calmed the markets on Friday, assuring that larger rate hikes would remain off the table.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental rallied by 8.22%, with Daimler gaining 3.25%. BMW and Volkswagen saw losses of 1.77% and 1.14%, respectively.

It was a bullish week for the banking sector. Deutsche Bank rose by 0.34%. with Commerzbank ending the week up by 5.07%.

From the CAC, it was also a bullish week for the French banks. BNP Paribas rallied by 3.54%, with Credit Agricole and Soc Gen rising by 3.21% and 3.41%, respectively.

The French auto sector had a bullish week. Stellantis NV rallied by 4.88%, with Renault up 1.86%.

Air France-KLM fell by 1.62%, with Airbus ending the week down 1.06%.

On the VIX Index

In the week ending May-13, the VIX fell for a second consecutive week. The VIX had risen for four consecutive weeks ahead of the current downtrend.

Following a 9.61% decline from the previous week, the VIX fell by 4.37% to end the week at 28.87.

4-days in the red from 5 sessions, which included a 9.13% slide on Friday, delivered the downside.

For the week, the NASDAQ slid by 2.80%, with the Dow and the S&P500 seeing losses of 2.14% and 2.41%, respectively.

The Week Ahead

It is a quiet week ahead on the Eurozone economic calendar.

Eurozone trade, GDP, and inflation figures are due out. Expect any revisions from the first estimate GDP and any upward revisions to prelim inflation figures to draw interest.

It is a busy week ahead on the US economic calendar.

On Tuesday, retail sales figures will be key ahead of jobless claims and Philly Fed Manufacturing Index numbers on Thursday.

While stats from the Eurozone and the US will influence, economic data and news updates from China will also need considering.

On Monday, industrial production figures for April set the tone. The markets will be looking out for updates on new lockdown measures.

Away from the economic calendar, updates on the war in Ukraine and crude oil prices will also influence.