European Equities: A Week in Review – 20/08/21

The Majors

It was a relatively bullish week for the majors in the week ending 27^th August. Compared with the prior week’s losses, the gains were modest, however.

The DAX30 rose by 0.28%, with the DAX30 and the EuroStoxx600 ending the week up by 0.84% and by 0.76% respectively.

Private sector PMIs and economic data from Germany tested support for the DAX30 in particular.

While economic data from the U.S was mixed in the week, market focus was towards FED Chair Powell’s policy speech at the end of the week.

Uncertainty over FED policy had pegged the majors back in the week. FED Chair Powell’s speech delivered support for riskier asset, with the DAX30 reversing losses from earlier in the week.

Concerns over the continued rise in the number of Delta variant cases worldwide was a negative for the majors, however.

The Stats

Prelim private sector PMIs for August and the German economy were in focus, with the stats skewed to the negative.

Germany’s manufacturing PMI fell from 65.9 to 62.7, with the services PMI declining from 61.8 to 61.5.

For France, the manufacturing PMI fell from 58.0 to 57.3, with the services PMI falling from 56.8 to 56.4.

As a result, the Eurozone’s manufacturing PMI fell from 62.8 to 61.5. The services PMI slipped from 59.8 to 59.7.

From Germany, the economy grew by 1.6% in the 2^nd quarter, coming in ahead of a forecasted 1.5%. Year-on-year, the economy grew by 9.8%. Year-on-year, the economy had contracted by 3.4% in the previous quarter.

While the GDP numbers were upbeat, business and consumer sentiment disappointed.

Germany’s IFO Business Climate Index fell from 100.7 to 99.4, with the GfK Consumer Climate Indicator falling from -0.40 to -1.20.

From the U.S

Early in the week, private sector PMIs were in focus. Weaker numbers weighed, with the Services PMI falling from 59.9 to 55.2 in August, according to prelim figures.

On Wednesday, core durable goods rose by 0.7% in July, following a 0.6% increase in June, which was a positive.

2^nd quarter GDP numbers were also revised up on Thursday. In the 2^nd quarter, the economy grew by 6.6%, which was up from a 6.5% first estimate.

Jobless claims disappointed, however, with initial jobless claims rising from 349k to 353k.

At the end of the week, personal spending and inflation figures delivered mixed results.

In July, the Core PCE Price Index rose by 3.6% year-on-year, which was in line with forecasts and June figures. Month-on-month, the index rose by 0.3% following a 0.5% increase in June.

Personal spending disappointed, however, with spending up by just 0.3%. Spending had risen by 1.1% in June.

While the stats did influence, FED Chair Powell’s speech on Friday was the main event of the week…

The FED Chair Powell delivered what the markets were looking for, weighing on the Dollar while supporting riskier assets. In line with expectations, Powell talked of tapering later in the year but highlighted that tapering did not mean tightening and that it would not translate into a shift in policy on interest rates…

The Market Movers

From the DAX, it was a bullish week for the auto sector. Volkswagen rallied by 4.03% to lead the way, with Continental and Daimler ending the week up by 2.05% and by 2.20% respectively. BMW saw a more modest 1.58% gain in the week.

It was also a bullish week for the banking sector. Deutsche Bank and Commerzbank rose by 0.67% and by 2.13% respectively.

From the CAC, it was a bullish week for the banks. Credit Agricole and Soc Gen rallied by 3.06% and by 3.61% respectively, with BNP Paribas rising by 2.61%.

It was a mixed week for the French auto sector, however. Stellantis NV slipped by 0.09%, while Renault eked out a 0.06% gain.

Air France-KLM and Airbus ended the week with gains of 5.40% and 4.11% respectively.

On the VIX Index

It was a back into the red for the VIX in the week ending 27^th August, marking a 4^th weekly loss in 6-weeks.

Partially reversing a 20.13% rise from the previous week, the VIX fell by 11.69% to end the week at 16.39.

3-days in the red from 5 sessions, which included a 7.60% fall on Monday and a 13.00% slide on Friday delivered the downside. A 12.21% rise on Thursday limited the downside, however.

For the week, the NASDAQ rallied by 2.82%, with the Dow and the S&P500 ending the week up by 0.96% and by 1.52% respectively.

The Week Ahead

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

On Tuesday, French consumer spending and 2^nd quarter GDP numbers are due out along with German unemployment data.

Expect the GDP and unemployment figures to be of greater influence.

On Wednesday, German retail sales and Spanish and Italian manufacturing PMIs are due out. Finalized numbers for France, Germany, and the Eurozone will also draw attention, however.

Barring marked revisions to prelim numbers, Italy and the Eurozone’s PMIs and German retail sales will be key.

At the end of the week, service sector PMIs will also be in focus.

From the U.S, there’s also plenty to consider…

In the first half of the week, consumer sentiment, ADP nonfarm employment, and ISM Manufacturing PMI figures are in focus.

Expect the consumer sentiment and ADP numbers to be key.

In the 2^nd half of the week, the focus will shift to the jobless claim figures on Thursday.

Wrapping things up, however, will be the nonfarm payrolls for August. Another surge in hiring could be the green light for the FED to make a move.

From China, private sector PMIs for August will also influence… On, Wednesday, the Caixin Manufacturing PMI will be the key stat of the week.

Away from the economic calendar, COVID-19 news updates and monetary policy chatter will also need monitoring.