European Equities: A Week in Review – 14/03/20

The Majors

It was another week in the red for the European equities. This time around, however, the majors entered into bearish territory.

Negative sentiment towards the spread of the coronavirus hit the majors through the 1^st half of the week.

In the 2^nd half of the week, the European majors saw particularly heavy losses. U.S President Trump’s national address sank the markets on Thursday before delivering support on Friday.

The U.S President and administration’s mishandling of the coronavirus spread and ban on entry into the U.S from Europe had caused the Thursday meltdown.

Throughout the week, the coronavirus continued to spread, leading to an Italian shutdown and France and Germany seeing cases surge.

While support kicked in on Friday, the losses were certainly severe, with the EuroStoxx600 seeing its largest single-day loss on record.

The Friday bounce-back came in spite of the ECB standing out from the crowd, On Thursday, the ECB left interest rates unchanged.

For the week, the EuroStoxx600 ended the week down by 18.44%, with the CAC40 and DAX30 down by 19.86% and 20.01% respectively.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

Key stats in the week included industrial production and trade data out of Germany and industrial production and 4^th quarter GDP numbers from the Eurozone.

The key stats had a muted impact on the majors in the week.

Finalized February inflation figures out of Germany, France, and Spain also had a muted impact.

ECB monetary policy added to the market angst on Thursday, with the ECB holding interest rates steady. There was some good news, with the ECB offering banks loans at a rate of -0.75%, ultimately meaning that banks get paid to lend.

It remains to be seen whether the move will be positive, with SMEs likely to struggle into the 2^nd quarter with cash flows. At the end of the week, news of fiscal policy support from the German government was certainly positive.

From the U.S, the data also did little to move the dial, with the U.S administration seemingly the key driver in the week.

The Market Movers

From the DAX, it was a particularly bearish week for the auto sector, in spite of a Friday rally. Daimler led the way down, tumbling by 23.02%, with Continental and Volkswagen sliding by 20.89% and by 21.71% respectively. BMW saw a more modest loss of 17.55% in the week.

It was also particularly bearish week for the banking sector, with Deutsche Bank and Commerzbank tumbling by 19.85% and 24.67% respectively.

Lufthansa fell by a relatively modest 13.53%, with a 10.17% rebound on Friday limiting the damage.

From the CAC, things were not much better for the banks. BNP Paribas slid by 17.61%, while Credit Agricole and Soc Gen tumbled by 26.24% and by 19.86% respectively.

The French auto sector took an even bigger hit, with Renault and Peugeot slumping by 28.63% and 26.38% respectively.

Air France-KLM also found strong support at the end of the week, with a 12.69% rally cutting the deficit to a 15.85% loss for the week.

On the VIX Index

The VIX was on the move once more, rising by 37.89% in the week ending 13^th March. Following on from a 4.56% gain from the previous week, the VIX ended the week at 57.8.

3 days in the green out of 5 that included a 40.02% rally on Thursday delivered the gains, which came in spite of Friday’s pullback. On Friday, the VIX slid by 23.37% as the U.S Administration promised fiscal support once more.

For the week, the S&P500 fell by 8.79%. A 9.29% bounce back on Friday certainly made things look a lot better. In the week, the S&P500 had entered bearish territory, triggering circuit breakers along the way.

The Week Ahead

It’s a quiet week ahead on the Eurozone economic calendar. Key stats include ZEW Economic Sentiment figures out of Germany and the Eurozone and Eurozone trade data.

We would expect the ZEW numbers to have an impact, with March data likely to reflect the effects of the coronavirus on sentiment.

Italian and Eurozone inflation figures for February and January trade data out of the Eurozone will likely have a muted impact.

For the European markets and risk sentiment, Monday and Wednesday will be in focus.

On Monday, industrial production and retail sales figures out of China will likely spook the markets.

On Wednesday, the focus will shift to the FED and March’s interest rate decision. Expectations are for another rate cut. Perhaps of greater significance will be the FOMC Economic Projections.

The U.S administration has looked to play down the effects of the virus on the economy. The FED is unlikely to be so accommodating.

EU member states will be loosening the purse strings to attempt to combat the coronavirus. While this should be market positive, much will depend on the containment measures.

The good news is that the WHO has already called it a pandemic and that’s as bad as it can get, from a classification perspective.