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Bob Mason

The Majors

It was a bullish week for the European majors in the week ending 17th January. The CAC40 and EuroStoxx600 rose by 1.02% and by 1.29% to lead the way, while the DAX30 rose by a more modest 0.32%.

It wasn’t plain sailing for the majors, however, with market sentiment towards the phase 1 trade agreement weighing early in the week.

Through the 2nd half of the week, support kicked in as the U.S administration discussed more details about the agreement.

There had been some concern over the fact that tariffs would remain in place until after the U.S Presidential Election in November. On Thursday, the administration stated that remaining tariffs would be rolled back in stages, which supported record highs across the U.S majors.

The gains came in spite of a string of weak stats out of the Eurozone in the week, with the EuroStoxx600 closing out at a new record high.

For the DAX, comments from the China Association of Automobile Manufacturers at the start of the week weighed. The CAAM stated that it expected auto sales to decline for a 3rd year-in-a-row in 2020.

Coupled with the remaining tariffs and the lingering threat of U.S tariffs on EU goods, the DAX needed a 0.72% gain on Friday to move into the green for the week.

The Stats

It was a relatively quiet week on the Eurozone economic calendar. Key stats included November industrial production and trade data from the Eurozone and German GDP figures.

The stats certainly didn’t help.

Eurozone industrial production rose by just 0.2%, month-on-month, coming up short of a forecasted 0.3% rise. In October production had fallen by 0.9%. Year-on-year, things were more dire, with production down by 1.5%.

The Eurozone’s trade surplus narrowed from €28.0bn to €20.7bn, with exports to the rest of the world falling by 2.9%. Intra-euro area trade fell by 3.8%, with imports from the rest of the world sliding by 4.6%.

Finalized December inflation figures from member states and the Eurozone had a muted impact in the week.

Things were not much better from Germany, with economic growth slowing to a 6-year low 0.6%, putting pressure on the German government to open the coffers…

From elsewhere, while China saw the slowest growth in 29 years, the economy steadied in the 4th quarter, supporting the majors.

The Market Movers

From the DAX, it was a bearish week for the auto sector. BMW and Daimler led the way down, sliding by 4.21% and by 5.25% respectively. Continental and Volkswagen saw more modest losses of 3.15% and 1.42%% respectively.

The losses came off the back of the negative outlook towards demand from China in the year ahead.

It was also a bearish week for the banking sector, with Deutsche Bank and Commerzbank falling by 0.78% and by 8.17% respectively.

From the CAC, the banks also struggled. BNP Paribas and Soc Gen slid by 2.70% and by 2.48% respectively. Credit Agricole saw a more modest 0.08% loss for the week.

The French auto sector also struggled in the week, with Peugeot and Renault sliding by 5.13% and by 6.17% respectively.

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On the VIX Index

The VIX Index saw more red, falling by 3.66% in the week ending 17th January. Following on from a 10.41% slide from the previous, the VIX ended the week at 12.1

A bullish week for the U.S equity markets, supported by positive sentiment towards the economy and the trade agreement weighed.

There had been some apprehension ahead of the signing on Wednesday that delivered a week high 13.8 on Tuesday. It didn’t last long, however, with 2 consecutive days in the red leaving the VIX in the red.

The Week Ahead

It’s a relatively busy week on the Eurozone economic calendar. At the start of the week, key stats include January ZEW economic sentiment figures for Germany and the Eurozone.

We would expect Germany’s ZEW numbers to have the greatest impact on the day.

The focus will then shift to January’s prelim private-sector numbers for France, Germany, and the Eurozone, which are due out on Friday.

From the U.S, expect private sector PMI figures on Friday will also influence.

On the monetary policy front, the ECB will deliver its first monetary policy decision of the year. While no moves are anticipated, how Lagarde projects the economy will influence during Thursday’s press conference.

Geopolitics may also play a hand in the week ahead as Britain prepares to leave the EU and enter its transition period on 31st January. We would expect impeachment news from the U.S to garner plenty of attention, though the impact may be muted. For now, it remains unlikely for Trump to be ousted from office.

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