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European Equities: A Week in Review – 15/02/20

It was another bullish week for the majors, in spite of 3 consecutive days in the red. Economic data and COVID-19 remain negatives, however.
Bob Mason
Growing Euro notes arrows over the flag of European Union.

The Majors

It was another bullish week for the European majors in the week ending 14th February, with the DAX30 rallying by 1.70% to lead the way. The CAC40 and EuroStoxx600 saw more modest gains of 0.66% and 1.49% respectively.

A bullish start to the week delivered the gains, with the markets responding to a slower rate of infection in China, according to figures that had been released on Tuesday.

Economic data from the Eurozone was of little help in the week, while hopes of a sizeable stimulus package from Beijing took the edge off.

Through the 2nd half of the week, updates on the spread of COVID-19 pinned back the majors that saw red for 3 consecutive days.

The Stats

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

Key stats included December industrial production figures out of the Eurozone and 4th quarter GDP numbers for Germany and the Eurozone.

Industrial production slid by 2.10%, reversing a 0.2% rise from November with interest. The figures, released on Tuesday, had a muted impact on the majors, however, as the markets reacted to the brief lull in COVID-19 cases.

The market focus then shifted to 4th quarter GDP numbers out of Germany on Friday. According to 1st estimate numbers released by Destatis, the German economy stalled in the 4th quarter. Economists had forecast growth of 0.1%, quarter-on-quarter. In the 3rd quarter, the economy had grown by 0.2%.

While the German economy stalled in the 4th quarter, avoiding a contraction limited the impact on the DAX30.

Year-on-year, the economy grew by 0.3%, which was down from 1.1% in the 3rd quarter. Economists had forecast growth of 0.2%.

For the Eurozone, 2nd estimate growth for the 4th quarter was unchanged at 0.1%, while revised down from 1.0% to 0.9% year-on-year.

Inflation figures released during the week had a muted impact.

Elsewhere, key stats from the U.S provided support, with consumer confidence on the rise, according to figures released on Friday. Retail sales figures failed to impress on Friday, however.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Continental and Volkswagen led the way once more, rallying by 5.46% and by 2.73% respectively. BMW and Daimler saw more modest gains of 1.78% and 0.89% respectively.

The gains came in spite of a bearish 2nd half of the week, with auto sales figures out of China weighing.

According to the latest figures released by China’s Association of Automobiles, there was an 18% slump in car sales to China in January, year-on-year. It was the 19th consecutive fall in car sales. China’s Association of Automobiles also warned that the virus will deliver a huge shock to the car industry.

It was a particularly bullish week for the banking sector, with Deutsche Bank rallying by 7.17% and Commerzbank up by 13.77%.

From the CAC, it was a relatively bullish week for the banks. BNP Paribas and Soc Gen rallied by 3.57% and by 3.86% respectively, while Credit Agricole saw a more modest 0.37% gain.

It was a bearish week for the French auto sector, however. Peugeot and Renault fell by 0.15% and by 1.60% respectively.

The shift in risk appetite early in the week also supported airline stocks. Germany’s Lufthansa rose by 4.03%, with Air France-KLM up by 8.02%.


On the VIX Index

It was a 2nd consecutive week in the red for the VIX in the week ending 14th February. Following a 17.78% slide from the previous week, the VIX fell by 11.57% to end the week at 13.7.

U.S equities hit record highs in the week, weighing on the VIX, which struggled in spite of the continued spread of COVID-19 and rise in the number of deaths.

Economic data at the end of the week delivered mixed results for the markets. While consumer confidence hit a 15-year high, retail sales were lackluster in January, with industrial production falling more than had been forecast.

The Week Ahead

It’s a relatively busy week ahead on the Eurozone economic calendar. Through the 1st half of the week, Germany’s business and consumer sentiment figures are in focus.

With the ECB continuing to rely on consumer spending to support growth, Tuesday’s numbers could test the majors further. The spread of COVID-19 and anticipated impact on economic growth is likely to weigh on confidence.

Business confidence is also expected to wane, particularly when considering the negative outlook on growth in China.

Last week, China’s auto sales figures and outlook should certainly raise some red flags for the sector.

In the 2nd half of the week, prelim February private sector PMIs are due out that will garner plenty of attention.

The markets will be looking for any effects of the COVID-19 virus on the Eurozone’s private sector. If forecasts are accurate, it’s going to be a bad month for the manufacturing sector…

From elsewhere, private sector PMI numbers from the U.S will also influence in the week. On Tuesday, NY Empire State manufacturing figures are due out ahead of Philly numbers on Thursday.

At the end of the week, expect U.S private sector PMI numbers to have the greatest influence, however…

While the stats will provide direction, news from China will likely overshadow the stats.

Any material rise in COVID-19 cases and deaths will test the market resilience as would any further spread globally. While the WHO looked to instill calm last week, doubts have crept in over the accuracy of China’s numbers. This may leave the markets all the more sensitive to the numbers from elsewhere.

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