European Equities: A Week in Review – 17/12/21

The Majors

It was a bearish week for the majors in the week ending 17^th December.

The EuroStoxx600 and the DAX30 fell by 0.31% and by 0.59% respectively, with the CAC40 ending the week with down by 0.93%.

A particularly busy set of economic indicators took a back seat in the week, with monetary policy in focus.

Both the FED and the ECB were in the week, with a shift in FED forward guidance on interest rates ultimately leaving the European majors in the red.

Initial market reaction to the FED’s projection of 3 rate hikes next year and a dovish ECB had delivered support on Thursday. A Thursday night tech sell-off in the U.S, however, weighed on the European majors on Friday. Concerns over the FED delivering on 3-rate hikes and possibly more next year to curb inflation tested support for riskier assets.

Adding to the market angst in the week was a continued rise in new COVID-19 cases, with governments failing to stem the spread of the Omicron strain.

The Stats

Early in the week, member state finalized inflation and Eurozone industrial production figures were in focus.

Finalized numbers affirmed a further increase in consumer prices across France, Italy, and Spain.

Industrial production figures for the Eurozone were also positive, with production up 1.1% in October.

In the 2^nd half of the week, prelim private sector PMI numbers for France, Germany, and the Eurozone were key, however.

An increase in Germany’s manufacturing PMI from 57.4 to 57.9 was the only highlight. In December, the Eurozone’s composite PMI fell from 55.4 to 53.4, with a contraction in Germany’s service sector contributing.

German business sentiment and finalized Eurozone inflation figures wrapped things up. While the inflation figures further affirmed the upward trend in consumer prices, business sentiment waned.

For December, the Ifo Business Climate Index fell from 96.5 to 94.7.

On the inflation front, the Eurozone’s annual rate of inflation accelerated from 4.1% to 4.9% in November, which was in line with prelim figures.

Other stats included wage growth and trade data for the Eurozone that had a muted impact on the markets.

On the monetary policy front, the ECB was also in action, delivering a more dovish stance on policy. While announcing an end to net asset purchases by March 2022, there were no other changes, with the ECB continuing to deliver assures of continued policy support.

From the U.S

Early in the week, wholesale inflation and retail sales figures drew plenty of interest. A further pickup in wholesale inflationary pressures and softer than expected consumer spending tested support for riskier assets.

In November, the U.S core annual rate of wholesale inflation accelerated from 7.0% to 7.7%.

Core retail sales rose by just 0.3%, however, following a 1.8% increase in October. Economists had forecast a 0.9% rise.

On Thursday, jobless claims and private sector PMIs were also in focus along with industrial production.

In the week ending 10^th December, initial jobless claims rose from 188k to 206k. There were also modest declines in the private sector PMIs for December. The all-important Services PMI slipped from 58.0 to 57.5.

While industrial production rose by a further 0.5% in November, after having risen by 1.7% in October, Philly FED data disappointed. In December, the Philly FED Manufacturing Index slid from 39.0 to 15.4.

Ultimately, however, it was the FOMC monetary policy decision and economic projections that moved the markets.

In line with expectations, the FED announced a faster end to the asset purchasing program The FED did also project 3 rate hikes for next year, however. This was up by 1 rate hike from the September projections.

The Market Movers

From the DAX, it was a bearish week for the auto sector. Daimler tumbled by 7.01%, with Continental and BMW sliding by 3.08% and by 3.91% respectively. Volkswagen ended the week down by 2.83%.

It was a mixed week for the banking sector, however. Deutsche Bank rose by 0.05%, while Commerzbank declined by 2.15%.

From the CAC, it was a bearish week for the banks. Credit Agricole slid by 1.80%, with Soc Gen and BNP Paribas ending the week with losses of 1.41% and by 0.95% respectively.

The French auto sector also had a bearish week. Stellantis NV and Renault fell by 1.26% and by 2.25% respectively.

Air France-KLM and Airbus also struggled, ending the week down by 3.55% and by 1.36% respectively.

On the VIX Index

It was back into the green for the VIX in the week ending 17^th December, marking a 4^th increase in 5-weeks.

Partially reversing a 39.06% slump from the previous week, the VIX rose by 15.41% to end the week at 21.57.

4-days in the green from 5 sessions, which included an 8.67% rise on Monday and a 7.78% increase on Tuesday delivered the upside.

For the week, the NASDAQ slid by 2.95%, with the Dow and the S&P500 ending the week down by 1.68% and 1.94% respectively.

The Week Ahead

It’s particularly quiet week ahead on the economic calendar, with a number of major markets on a shortened week.

From the Eurozone, stats are limited to German consumer sentiment and 3^rd quarter GDP numbers from Spain.

Expect the consumer sentiment figures to have the greatest influence on the majors.

From the U.S

It’s a busier week. On Wednesday, initial jobless claims and finalized 3^rd quarter GDP numbers will draw interest. Barring a marked revision to the GDP numbers, the jobless claims will likely have a greater impact on market risk sentiment.

On Thursday, core durable goods orders, personal spending, and inflation will also provide direction.

Away from the Economic Calendar

News updates on the new Omicron strain will need continued monitoring alongside central bank chatter.