European Equities: A Week in Review – 19/02/21

The Majors

It was another mixed week for the European majors in the week ending 19^th February.

The CAC40 and the EuroStoxx600 rose by 1.23% and by 0.21% respectively to mark a 2^nd consecutively weekly gain.

Bucking the trend, however, was the DAX30 that fell by 0.40% to mark a 2^nd consecutive weekly loss.

Positive economic data and optimism towards the economic outlook continued to provide the majors with support.

Market concerns over a pickup in inflationary pressures and the possible impact on monetary policy and consumption tested the majors, however.

With the EU rolling out vaccines at a slower pace and restrictions still in effect, rising prices would peg further back consumption across the Euro bloc.

The Stats

It was a busy week on the economic calendar.

Through the 1^st half of the week, economic data for Germany and the Eurozone were in focus.

For the Eurozone, the trade surplus widened from €25.8bn to €29.2bn reflecting improving trade terms.

Economic sentiment figures for February also delivered support. Germany’s ZEW Economic Sentiment index rose from 61.8 to 71.2, with the Eurozone’s rising from 58.3 to 69.8.

2^nd estimate GDP figures for the Eurozone were also market positive following upward revisions from 1^st estimates.

The only blemish early on in the week was a larger than expected fall in industrial production. Production fell by 1.6%, partially reversing a 2.5% rise from November.

In the 2^nd half of the week, Eurozone consumer confidence waned in February, with the index falling from -13.8 to -14.8.

Vaccine woes and extended containment measures likely contributed to the demise.

At the end of the week, private sector PMI numbers for February were in focus.

According to the prelim survey, the French Manufacturing PMI jumped from 51.6 to a 3-year high 55.0 in February. The services PMI fell from 47.3 to a 3-month low 43.6, however.

In Germany, manufacturing sector activity picked up in February, with the prelim Manufacturing PMI rising from 57.1 to a 36-month high 60.6. Economists had forecasted a fall to 56.5.

Service sector troubles continued, however, with the services PMI falling from 46.7 to a 9-month low 45.9.

For the Eurozone, the Manufacturing PMI increased from 54.8 to 57.7, while the services PMI fell from 45.4 to 44.7.

In spite of the fall in the services PMI, the composite PMI rose from 47.9 to 48.1, supported by the manufacturing sector.

On the monetary policy front, the ECB meeting minutes had a cautiously optimistic tone. Members did note, however, that risks remained titled to the downside, with EUR strength a possible concern.

From the U.S

Economic data was also on the busier side.

In the 1^st half of the week, retail sales and industrial production figures impressed.

Core retail sales jumped by 5.9%, with retail sales rising by 5.3% in January, reversing declines from December. Industrial production rose by a further 0.9%, following a 1.3% increase in December.

On Thursday, jobless claims and Philly FED Manufacturing numbers disappointed, however.

In the week ending 12^th February, initial jobless claims rose from 848k to 861k, while economists had forecasted a fall to 765k.

For February, the Philly FED Manufacturing Index slipped from 26.5 to 23.1.

On Friday, the numbers were mixed.

The all-important services PMI increased from 58.3 to 58.9 in February. Manufacturing sector activity saw marginally slower growth, however. The PMI fell from 59.2 to 58.5, according to prelim figures.

From the FED, the FOMC meeting minutes from Wednesday were aligned with recent assurances from FED Chair Powell. While the members agreed that policy should remain unchanged for the foreseeable future, members also acknowledged that the economic recovery had moderated.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen and Daimler rallied by 5.88% and by 3.76% respectively, with BMW gaining 1.64%. Continental bucked the trend, however, sliding by 4.90%.

It was a bullish week for the banking sector. Deutsche Bank rallied by 6.68%, with Commerzbank gaining 4.10% to partially reverse the previous week’s 9.06% slide.

From the CAC, it was another particularly bullish week for the banks. Soc Gen surged by 11.48%, with BNP Paribas and Credit Agricole gaining 3.98% and 4.04% respectively.

It was a mixed week for the French auto sector, however. Renault slid by 3.33%, while Stellantis NV ended the week up by 0.92%.

Air France-KLM rose by 1.77% off the back of a 3.28% rally on Friday, while Airbus fell by 0.48%.

On the VIX Index

It was back into the green for the VIX. In the week ending 19^th February, the VIX rose by 10.42%. Reversing a 4.31% fall from the previous week, the VIX ended the week at 22.05.

For the week, the NASDAQ and the S&P500 fell by 1.57% and by 0.71% respectively, while the Dow ended the week up by 0.11%.

The Week Ahead

It’s another busy week ahead on the economic calendar.

In the 1^st half of the week, the German business sentiment figures and finalized inflation figures for the Eurozone are due out.

Barring any revision from prelim figures, expect Germany’s IFO Business Climate Index to be the key driver.

Mid-week, the focus shifts to 2^nd estimate GDP numbers for Germany. Following upward revisions to the Eurozone’s 4^th quarter numbers, expect any revisions to influence.

On Thursday, German consumer confidence figures will draw attention ahead of French consumer spending and 2^nd estimate GDP numbers on Friday.

From the U.S, the economic calendar is also on the busier side.

It’s a quiet start to the week, however, with February consumer confidence figures in focus.

In the 2^nd half of the week, the focus will shift to the weekly jobless claims and core durable goods orders on Thursday. 2^nd estimate GDP numbers for the 4^th quarter will also draw attention ahead of a busy end to the week.

On Friday, personal spending and the FED’s preferred core PCE price index figures will provide direction.

While personal spending is key, market jitters over a pickup in inflationary pressures influenced last week. Expect January’s numbers to therefore garner plenty of interest.