European Equities: A Week in Review – 21/03/20

The Majors

It was another week to forget for the market bulls as the European equities hit reverse once more in the week ending 20^th March. Things could have been much worse, however, had it not been for a Thursday and  Friday rally, which delivered 3 days in the green out of 5.

For the week, the EuroStoxx600 fell by 2.05%, with the CAC40 and DAX30 declining by 3.28% and 1.68% respectively.

There was no Friday the 13^th sell-off, but there was a FED induced tumble at the start of the week to get things going.

An unexpected FED decision to slash rates to zero and to deliver US$700bn in QE to support the U.S economy caught the markets off-guard.

While the FED delivered a seismic shock, the EU shut its borders as did other countries in a bid to contain the rapidly rising spread of the virus.

With economic data taking a backseat in the week, the focus was not only on the coronavirus numbers but central bank and government measures to combat the economic fallout.

Late in the week, the ECB announced further measures to support the economy, which included a €750bn Pandemic Emergency Purchase Programme (PEPP).

The announcement provided support on Thursday, though not even close to reversing losses from earlier in the week.

The Stats

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

Key stats in the week included Germany and the Eurozone’s ZEW Economic Sentiment figures for March and the Eurozone’s January trade data.

The ZEW Economic Sentiment figures certainly reflected the impact of the coronavirus on economist and analyst sentiment.

Germany’s ZEW Economic Sentiment Index slumped from 8.7 to -49.5, with the Eurozone’s tumbling from 10.4 to -49.5. Economists were once more way off the mark, with the German Economic Sentiment Index forecast to fall to -26.4 and the Eurozone Index to fall to -36.

Trade data out of the Eurozone were only January numbers but were still disappointing suggesting some dire numbers on the horizon.

In January, the trade surplus narrowed from €23.1bn to just €1.3bn…

From the U.S, the numbers were not much better. Looking at March numbers, the NY Empire State Manufacturing Index slid from 12.9 to -21.5. The Philly FED Manufacturing PMI also sounded the alarm bells, with a slide from 36.7 to -12.7.

Of greater significance, however, was a jump in the weekly initial jobless claims from 211k to 281k. The last time 300k was breached was back in March 2015. We could see 300K+ levels next week, which will test the majors further…

The Market Movers

From the DAX, it was a particularly bearish week for the auto sector, in spite of another Friday rally. Volkswagen led the way down, tumbling by 20.60%, with Continental and Daimler sliding by 18.28% and by 16.57% respectively. BMW saw a more modest loss of 14.51% in the week.

It was a mixed week for the banking sector, however, with Deutsche Bank falling by 1.12%, while Commerzbank rose by 0.91%.

Lufthansa fell by a further 9.53% in the week, following on from a 13.53% slide from the previous week.

From the CAC, things were not much better for the banks. BNP Paribas and Soc Gen slid by 13.52% and by 14.46% respectively, while Credit Agricole slipped by just 0.44%.

The French auto sector also saw red, with Renault and Peugeot falling by 3.29% and by 4.88% respectively.

Air France-KLM also found support at the end of the week, to fall by just 3.93% in the week.

On the VIX Index

It was a 5 consecutive weekly gain for the VIX, which rose by 14.02% in the week ending 20^th March. Following on from a 38.89% gain from the previous week, the VIX ended the week at 66.0.

Risk aversion stemming from the FED rate cut going into Monday and the continued spread of the coronavirus delivered the upside.

A broad-based equity market sell-off saw the VIX rally by 42.99% on Monday, delivering one of just 2-days in the green for the week.

Progress by the U.S administration to combat the coronavirus with fiscal policy provided some support to equity markets in the week.

The S&P500 slid by 14.98% in the week, with the losses coming in spite of support from the FED and the U.S Government…

The Week Ahead

It’s a busy week ahead on the Eurozone economic calendar. Key stats include March prelim Manufacturing PMI numbers for France, Germany and the Eurozone on Tuesday. Expect plenty of sensitivity to the numbers that are likely to be quite dire.

March business climate and April consumer climate figures for Germany due out on Wednesday and Thursday will also influence.

From elsewhere, Private sector PMIs and weekly jobless claims from the U.S and industrial profit figures out of China on Friday will also garner plenty of attention.

While the stats will begin to influence, expect news updates on the coronavirus to remain the main area of focus.

The governments have taken measures to contain the spread of the virus. Expect the markets to react should the spread continue to gather pace as this would mean more stringent measures, which would translate into more economic woes…

We’ve seen plenty of emergency moves by central banks and governments delivering fiscal support. Without being able to yet fully quantify the economic fallout, there may be a pause in the week. A lack of action could weigh on the majors…