European Equities: A Week in Review – 15/01/21

The Majors

It was a bearish week for the European majors, which partially reversed gains from the first week of the year.

The DAX30 and CAC40 slid by 1.86% and by 1.67% respectively, with EuroStoxx600 falling by 0.81%.

For the EuroStoxx600, a run of 4 consecutive weekly gains came to an end.

Concerns over the effect of extended lockdown measures in Eurozone tempered market optimism towards the economic recovery.

Low vaccination rates and a continued surge in new COVID-19 cases suggested that any economic recovery would be on hold near-term.

While economic data from China had provided support to the European majors, data from the U.S added to the bearish sentiment.

The Stats

It was a relatively quiet week on the economic calendar.

Industrial and trade data for the Eurozone were in focus along with full year GDP numbers for Germany.

The German economy contracted by 5.0% in 2020, following 0.6% growth in 2019. Not only did the contraction bring to an end a run of 10 consecutive years of growth but also ended a run of 14 continuous years of upward trend in employment. In 2020, employment fell by 1.1%.

From the Eurozone, industrial production rose by 2.5% in November, following a 2.3% increase in October.

The Eurozone’s trade surplus narrowed from €30.0bn to €25.8bn in November, however, reflecting the impact of the COVID-19 pandemic on trade terms late in the year.

Finalized December inflation figures for France and Spain released at the end of the week had a muted impact on the majors, however.

On the monetary policy front, the ECB monetary policy meeting minutes provided few surprises.

ECB President Lagarde was optimistic towards the economic outlook mid-week, however. The ECB President stood by the ECB’s current growth forecast for 2021, noting that forecasts had been made with a 1^st quarter lockdown factored in.

From the U.S

Economic data was also on the busier side.

Key stats included JOLTs job openings, inflation, jobless claims, retail sales, and consumer sentiment figures.

While the annual rate of core inflation held steady at 1.6% in December, jobless claims figures disappointed at the start of the year.

In the week ending 8^th January, initial jobless claims had jumped from a previous week 784k to 965k.

In December, core retail sales slid by 1.4%, with retail sales falling by 0.7%. Both were worse than forecasted. In November, core retail sales had fallen by 1.3%, with retail sales down by 1.4%.

January prelim consumer sentiment also disappointed, with a decline from 80.7 to 79.2.

Other stats from the U.S included industrial production, NY Empire State Manufacturing, and business inventory numbers. These stats had a muted impact on the European majors on Friday, however.

A pickup in industrial production in December failed to impress.

On the monetary policy front, FED Chair Powell assured the markets that there are no plans to hike rates anytime soon. Also positive for the majors was Powell’s view that the FED would not begin tapering its bond purchases.

From elsewhere, economic data from China also supported.

While inflationary pressures picked up at the end of the year, it was December trade figures that impressed in the week.

China recorded a 19.1% jump in exports following a 21.1% surge in November. Imports rose by a more modest but still sizeable 6.5%, suggesting a positive outlook for demand.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen rallied by 3.02% to buck the trend. Daimler slid by 2.83%, with BMW and Continental falling by a further 1.85% and by 1.47% respectively.

It was a bullish week for the banking sector, however. Deutsche Bank rose by 1.05%, with Commerzbank rallying 3.66%.

From the CAC, it was a bearish week for the banks. Credit Agricole slid by 4.59%, with BNP Paribas and Soc Gen falling by 1.86% and by 2.53% respectively.

It was also a bearish week for the French auto sector. Peugeot fell by 1.04%, with Renault tumbling by 7.01%.

Air France-KLM reversed last week’s 5.02% slide, rising by 4.46%, with Airbus ending the week up by 2.72%

On the VIX Index

It was back into the green for the VIX. In the week ending 15^th January, the VIX rising by 12.89%. Reversing a 5.23% fall from the previous week, the VIX ended the week at 24.34.

For the week, NASDAQ and S&P500 slid by 1.54% and by 1.48% respectively, with the Dow falling by 0.91%.

Disappointing economic data and market reaction to the Biden stimulus package left the majors in the red for the week.

A continued rise in new COVID-19 cases and low vaccination rates in the U.S added to the market angst in the week.

The Week Ahead

It’s a particularly busy week ahead on the economic calendar. Key stats include December ZEW Economic Sentiment figures for Germany and the Eurozone and member state January prelim private sector PMIs.

PMIs for France, Germany, and the Eurozone are due out on Friday. Expect Germany’s manufacturing and the Eurozone’s composite to draw greatest interest.

With lockdown measures in place across France and Germany at the end of the year, the markets will be looking to assess the damage. Service sector activity will likely take the brunt of it at the turn of the year.

On the monetary policy front, the ECB is in action on Thursday, though no moves are anticipated following Lagarde’s view on the economy.

From the U.S, weekly jobless claims figures on Thursday and private sector PMI figures on Friday will also influence.

Out of China, expect 4^th quarter GDP figures and December industrial production, retail sales, and employment figures to set the tone on Monday.

Away from the economic calendar, COVID-19 news and chatter from Capitol Hill will continue to remain in focus. Inauguration Day is just around the corner and the markets will be looking for Biden’s near-term goals.