European Equities: A Week in Review – 18/10/19

The Majors

It was a mixed week for the European majors. The DAX30 rose by 0.97% to lead the way, with the EuroStoxx600 up by just 0.06%. It was a bearish end to the week for the CAC40, however, which fell by 0.65% on Friday to end the week down by 0.52%. The DAX30 and EuroStoxx600 saw more modest losses of 0.17% and 0.32% on Friday to stay in the green for the week.

It was another bearish start to the week for the European majors, with geopolitical risk weighing.

While progress had been made in the U.S – China trade talks, the lack of an actual agreement and continuation of tariffs weighed on Monday.

It was upwards from there, however, with positive progress on Brexit and U.S corporate earnings providing support mid-week.

In the latter part of the week, the majors ran out of steam, however, with concerns over Parliament voting through the deal pinning back the majors.

Economic data played second fiddle to geopolitics through the week, with the Eurozone’s economic data on the lighter side.

From outside of the Eurozone, economic data from China also tested the majors.

Economic growth in China slowed to 6.0% in the 3^rd quarter, year-on-year, with the economy growing by 1.5% in the quarter. It was the slowest growth in 17-years.

The Stats

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

On Monday, the Eurozone’s industrial production figures were positive, with production rising by 0.4% in August, month-on-month. Production had fallen by 0.4% in July.

Tuesday was a more negative day on the data front, however. While coming in ahead of forecasts, economic sentiment waned in Germany and the Eurozone in October.

Concerns over Brexit and the U.S – China trade war weighed on consumer sentiment at the start of the 4^th quarter.

On Wednesday, the Eurozone’s trade data continued to reflect the ongoing effects of the U.S – China trade war.

The trade surplus narrowed beyond expectations. In spite of the negative numbers, the majors managed to find more gains supported by Brexit chatter.

Finalized September inflation figures for France, Italy and the Eurozone had a muted impact on the majors.

The Market Movers

From the DAX, it was another bullish week for the auto sector. Volkswagen led the way once more, rallying by 4.91%. BMW and Daimler also saw solid gains, rising by 4.62% and 3.53% respectively. Continental trailed the pack, however, gaining 1.93%.

It was also bullish for the banking sector. Deutsche Bank gained 4.42%, with Commerzbank up by 2.71%.

Concerns over the economic outlook weighed on the banking sector at the end of the week. A 1.12% loss for Commerzbank on Friday limited the upside for the week.

From the CAC, the banks also found strong support. Soc Gen and Credit Agricole led the way, rising by 3.07% and by 2.90% respectively. PNP Paribas, gained 2.71% to trail the pack. It was a mixed week for the French auto sector, however. While Peugeot rose by 2.74%, Renault slid by 9.06%, weighed by an 11.48% tumble on Friday.

Renault cut its 2019 revenue outlook, which led to the slump on the day.

On the VIX Index

The VIX Index fell by 8.54% in the week ending 18^th October. Following on from an 8.57% decline from the previous week, the VIX ended the week at 14.3.

Downward pressure through the 1^st half of the week left the VIX in the red, with progress on Brexit and talk of a draft U.S – China trade agreement weighing.

Talk of Boris Johnson likely to face yet more opposition in Parliament over the latest Brexit agreement supported the VIX late on, however.

3 consecutive days in the green led to a recovery from Thursday’s intraweek low $13.3.

The Week Ahead

It’s a busy week on the Eurozone economic calendar. The markets will need to wait until Thursday, however, for key stats.

Prelim October private sector PMI numbers are due out of France, Germany, and the Eurozone on Thursday.

We can expect plenty of sensitivity to German manufacturing and Eurozone composite PMI figures. Service sector PMIs will also need to reverse September’s pullback to provide support.

Later in the day, the ECB monetary policy decision is also due. Any hint of further easing would be market positive, though the ECB would need to avoid doom and gloom chatter on the day.

At the end of the week, the market focus will then shift to consumer and business sentiment figures out of Germany.

From elsewhere, private sector PMIs and durable goods orders from the U.S will also play a hand on Thursday.

At the start of the week, the PBoC could deliver an early boost should there be further policy support.

On the geopolitical front, expect market reaction to the weekend parliamentary vote on the latest Brexit deal. Assuming Johnson fails for the 8^th time, chatter through the week of general elections and 2^nd referendums will play a hand.