European Equities: A Week in Review – 20/05/22

The Majors

It was a bearish week for the European majors in the week ending May 20, 2022.

The CAC40 slid by 1.22%, with the EuroStoxx600 and the DAX seeing losses of 0.55% and 0.33%, respectively.

A bullish end to the week was not enough for the major bourses, with sentiment towards monetary policy and recession fears leaving the majors in the red.

Economic data from China set a bearish tone from the start of the week, as lockdown measures took their toll.

Rising inflationary pressures, the ongoing war in Ukraine, and a shift in sentiment towards Fed and ECB monetary policy did the damage.

The Stats

Early in the week, trade data and GDP numbers delivered mixed results.

In March, the Eurozone’s trade deficit widened from €7.6bn to €16.4bn, with the war in Ukraine continuing to hit crude oil prices.

Second estimate GDP numbers for the Eurozone were market positive, however. In Q1, the economy grew by 0.3%, up from a first estimate of 0.2%. Year on year, the economy expanded by 5.1%, up from a first estimate of 5.0%.

Finalized inflation figures for the Eurozone had a muted impact mid-week, with the annual rate of inflation easing from 7.5% to 7.4%.

At the end of the week, however, German producer prices for industrial goods surged by 33.5% compared with April 2021, the highest increase on record.

From the EU, downward revisions to economic forecasts weighed on the European equity markets.

For 2022, the European Commission forecasts growth of 2.7% and 2.3% for 2023. While the Commission revised both downwards, the 2022 revision was most marked.

In February, the European Commission forecast growth of 4.0% for 2022 and 2.7% for 2023.

From the ECB, the monetary policy meeting minutes provided few surprises, with the talk of summer rate hikes in line with market expectations.

From the US

Early in the week, retail sales and industrial production figures eased fears of an economic meltdown.

In April, retail sales jumped 2.5%, with industrial production rising by 1.1%.

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

Initial jobless claims rose from 197k to 218k, in the week ending May 13, with the Philly Fed Manufacturing Index falling from 17.6 to 2.6 in May.

While the stats were mixed, Fed Chair Powell tested investor sentiment on Tuesday.

After providing the markets with assurances about larger rate hikes in the week prior, the Fed Chair talked of a willingness to move policy beyond neutral to curb inflation. Powell also discussed some possible pain ahead for the labor market while acknowledging that the Fed should have lifted rates sooner.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen and Continental rose by 1.03% and by 0.51%, respectively, while Daimler and BMW saw losses of 1.25% and 0.27%, respectively.

It was a bullish week for the banking sector. Deutsche Bank rose by 0.16%. with Commerzbank ending the week up by 12.60%.

From the CAC, it was also a bullish week for the French banks. Soc Gen rallied by 4.97%, with Credit Agricole and BNP Paribas rising by 0.97% and 2.54%, respectively.

The French auto sector had a mixed week. Stellantis NV slid by 4.97%, while Renault rose by 2.42%.

Air France-KLM jumped by 10.52%, with Airbus ending the week up 0.53%.

On the VIX Index

In the week ending May-20, the VIX ended a two-week losing streak to mark a fifth weekly rise in 7-weeks.

Partially reversing a 4.37% decline from the previous week, the VIX rose by 1.94% to end the week at 29.43.

2-days in the green from 5 sessions, which included an 18.62% jump on Wednesday, delivered the upside.

For the week, the NASDAQ slid by 3.82%, with the Dow and the S&P500 seeing losses of 2.90% and 3.05%, respectively.

The Week Ahead

It is a busier week ahead on the Eurozone economic calendar.

On Monday, Germany’s Ifo business climate index will draw interest ahead of private sector PMI numbers on Tuesday.

While the markets may forgive a weaker business climate index, weak manufacturing PMIs will test support for the majors.

On Wednesday, the German economy will be back in focus with GDP and consumer sentiment to wrap up the week.

From the US, prelim private sector PMIs for May kick things off. With the markets fretting over the risk of a recession, expect the services PMI to be the key.

On Wednesday, core durable goods orders will draw interest ahead of GDP and jobless claims figures on Thursday.

At the end of the week, core PCE price index and personal spending figures will also have a material impact on market risk sentiment.

From the Fed, the FOMC meeting minutes should provide few surprises following recent Fed Chair Powell speeches.

Away from the economic calendar, updates from China on lockdown measures and stimulus and the war in Ukraine will also influence.