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European Equities: A Week in Review – 14/12/19

A bullish 2nd half of the week delivered for the European majors. The markets will now be looking for the details to support any further upside.
Bob Mason
Growing Euro notes arrows over the flag of European Union.

The Majors

It was a bullish week for the European majors in the week ending 13th December, with the EuroStoxx600 rising by 1.15% to lead the way. The DAX30 and CAC40 saw more modest gains of 0.88% and 0.80% respectively.

The upside in the week came in spite of a bearish start to the week that saw the major fall for 2 consecutive days. A partial recovery on Wednesday and solid gains on Thursday and Friday were key.

In the early part of the week, negative sentiment towards trade had weighed on appetite for riskier assets.

Overnight on Wednesday, the FED’s more dovish projections on monetary policy for 2020 were market positive, ahead of a hectic end to the week.

On the trade front, sentiment improved in the 2nd half of the week. On Thursday, Trump had announced that a phase 1 agreement was imminent before declaring an in-principal agreement in the early hours of Friday.

From the UK, an impressive Tory Party victory in the early part of Friday morning also supported demand for riskier assets at the end of the week.

The Stats

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

In the first half of the week, key stats included trade data out of Germany and business sentiment numbers out of Germany and the Eurozone.

Germany’s trade surplus widened in October, supported by strong exports to non-EU countries. Business sentiment also improved in December, with Germany’s ZEW Economic Sentiment Index rising by -2.1 to 10.7.

The Eurozone’s Sentiment Index rose from 1.0 to 11.2.

While the stats were positive numbers, negative sentiment towards trade early in the week overshadowed the stats.

In the 2nd half of the week, industrial production figures from the Eurozone failed to impress, with production falling by 0.5% in October. In September, production had fallen by 0.1%.

Of less influence in the week were finalized inflation figures from Germany, France, and Spain and France’s nonfarm payroll numbers.

On the monetary policy front, ECB President Lagarde delivered her first monetary policy press conference as ECB President. As anticipated, monetary policy was left unchanged, with the main area of focus being on what changes are to be expected. The ECB will be reviewing its approach to monetary policy, which was a key takeaway.

There was little to upset risk appetite on the day, with the European majors finding support from updates on trade news.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Volkswagen led the way, rallying by 4.19%. BMW, Continental, and Daimler, also found strong support. BMW and Daimler rose by 2.99% and by 2.47% respectively, while Continental saw a more modest 1.62% gain.

It was also a bullish week for the banking sector. Deutsche Bank rose by 3.07%, while Commerzbank rallied by 5.19%.

From the CAC, it was a positive week for the banks. Credit Agricole and Soc Gen led the way with gains of 3.90% and 3.20% respectively. BNP Paribas saw a more modest 2.18% gain for the week.

For the French auto sector, the upside was more modest. Peugeot and Renault rose by 1.77% and by 1.53% respectively.

On the VIX Index

The VIX Index fell by 7.27% in the week ending 13th November. Reversing most of a 7.92% gain from the previous week, the VIX ended the week at 12.6.

It was a big start to the week, with negative sentiment towards trade leading to a 16.5% rally on Monday. A visit to 16 levels and a week high 16.9 on Tuesday was short-lived, however. 4 consecutive days in the red led to the reversal.

An accommodative FED and an easing in geopolitical risk in the 2nd half of the week led the pullback, as demand for riskier assets rebounded.

The Week Ahead

It’s a particularly busy week on the Eurozone economic calendar. Through the 1st half of the week, prelim December private sector PMIs from France, Germany, and the Eurozone will garner plenty of attention.

The markets will be looking for improving conditions across the private sector at the end of the year. While the majors will respond to the stats, the market reaction to the numbers may be more muted, however.

A phase 1 trade agreement between the U.S and China should ease pressure on global trade terms. Much will depend on the terms of the agreement, however, which may become clearer in the week.

On Wednesday, Business confidence figures out of Germany will also provide direction, with December’s Ifo Business Climate Index numbers in focus.

At the end of the week, consumer confidence figures out of Germany and the Eurozone will influence. For the CAC40, French consumer spending numbers will also provide direction.

We would expect finalized inflation figures and trade data from the Eurozone to have a muted impact in the week.

From elsewhere, industrial production figures from China on Monday and private sector PMIs from the U.S will also influence on Monday.

Later in the week, Philly FED Manufacturing numbers and finalized 3rd quarter GDP numbers from the U.S on Friday will also need to be monitored.

On the geopolitical risk front, details of the phase 1 trade agreement between the U.S and China will influence. The big question, however, will be whether there will be a full-blown agreement before next year’s Presidential Election.

From the UK, as the dust settles, expect Johnson’s plans to also have an impact on the European majors.

It’s a busy week before the holidays…

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