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Bob Mason
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The Majors

It was another choppy week for the European majors in the week ending 21st May.

In the week ending 21st May, the EuroStoxx600 rose by 0.43%, with the CAC40 and the DAX30 ending the week up by 0.14% and 0.02% respectively.

Inflation jitters returned early in the week, with the majors seeing deep red on Wednesday ahead of the FOMC meeting minutes.

Concerns over the FED needing to shift its monetary policy stance left the majors in the red before a Thursday and Friday recovery.

The FOMC meeting minutes, in fact, revealed that members were looking to review monetary policy in the coming months following the sharp economic rebound.

Plans to review the asset purchase program was highlighted within the minutes.

On the economic data front, however, jobless claims figures from the U.S provided support ahead of private sector PMIs numbers on Friday.

Impressive PMIs on Friday added further support to the European majors at the end of the week.

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The Stats

Early in the week, Eurozone 2nd estimate GDP and trade data for March were in focus.

While 2nd estimates were in line with 1st estimate figures, trade data was skewed to the negative.

In March, the Eurozone’s trade surplus narrowed from €17.7bn to €15.8bn. Economists had forecast a widening to €26.5bn.

The narrowing of the surplus was as a result of a 19.2% jump in imports, signaling strong demand rather than a marked decline in exports. Exports rose by 8.9% when compared with March 2020.

Mid-week, finalized inflation figures from the Eurozone and wholesale inflation figures from Germany had a muted impact on the majors.

At the end of the week, however, prelim private sector PMI figures for May were key.

According to prelim figures, the French manufacturing PMI rose from 58.9 to 59.2, with the services PMI rising from 50.3 to 56.6.

Germany’s manufacturing PMI fell from 66.2 to 64.0 while the services PMI increased from 49.9 to 52.8.

For the Eurozone

In May, the manufacturing PMI slipped from 62.9 to 62.8, while the services PMI increased from 50.5 to a 35-month high 55.1. Economists had forecast PMIs of 62.5 and 52.3 respectively.

Supported by the pickup in service sector activity, the composite PMI increased from 53.8 to a 39-month high 56.9. Economists had forecast an increase to 55.1.

According to the Markit survey,

  • The rate of expansion across the private sector hit the highest for over 3-years.
  • New order inflows surged at a pace not seen for almost 15-years.
  • Business optimism continued to hit new highs.
  • Price gauges rose further, however, as demand continued to outstrip supply for many goods and services.

From the U.S

Key stats included manufacturing numbers for NY State and Philly, the weekly jobless claim figures, and prelim private sector PMIs.

It was a mixed set of numbers for the Greenback and the broader market.

Manufacturing sector activity saw slower growth in May, with both the NY Empire State Manufacturing Index and Philly Manufacturing Index declining.

The modest falls were not enough to spook the markets, however.

On Thursday, the weekly jobless claim figures did draw plenty of interest, supporting riskier assets.

In the week ending 14th May, initial jobless claims fell from 478k to 444k.

At the end of the week, prelim private sector PMIs for May were in focus.

The services PMI jumped from 64.7 to 70.1, with the manufacturing PMI rising from 60.5 to 61.5. Economists had forecast PMIs of 64.5 and 60.2 respectively.

Other stats in the week included housing sector data that had a muted impact on the Dollar and the broader markets.

While the stats drew plenty of attention, the FOMC meeting minutes out mid-week were key.

The minutes revealed chatter amongst member of a need to review monetary policy amidst the sharp economic rebound. Asset purchases, in particular, were highlighted, contradicting FED Chair Powell’s assurances that asset purchases would remain unchanged. The markets had previously got jittery over a possible tapering to the asset purchasing program…

The Market Movers

From the DAX, it was another bullish week for the auto sector. Daimler and Volkswagen both rose by 1.82% respectively, with Continental and BMW rising by 1.55% and by 1.48% respectively.

It was a mixed week for the banking sector, however. Deutsche Bank rose by 2.12%, while Commerzbank ended the week flat.

From the CAC, it was a mixed week for the banks. Soc Gen rose by 0.54%, while BNP Paribas and Credit Agricole ended the week down by 1.40% and by 7,88% respectively.

It was also a mixed week for the French auto sector. Stellantis NV rose by 2.38%, while Renault ended the week down by 2.54%.

Air France-KLM and Airbus ended the week with losses of 3.12% and 1.67% respectively.

On the VIX Index

It was a 2nd consecutive week in the green for the VIX in the week ending 21st May. Following a 12.70% gain from the previous week, the VIX rose by 7.12% to end the week at 20.15.

3-days in the green from 5 sessions, which included an 8.22% rise on Tuesday, delivered the upside in the week for the VIX.

For the week, the Dow fell by 0.51%, with the NASDAQ and the S&P500 ending the week down by 0.31% and by 0.43% respectively.

The Week Ahead

It’s a quieter week ahead on the economic calendar.

On Tuesday, the German economy is back in focus.

Finalized 1st quarter GDP and May business sentiment figures are due out.

Barring any revisions to the GDP numbers, expect the Ifo business climate index figures to be the key driver.

The focus will then shift to German consumer climate figures on Thursday and French consumer spending and GDP numbers on Friday.

Expect Germany’s consumer climate and France’s consumer spending figures to garner the greatest interest.

From the U.S, consumer confidence figures are due out early in the week.

On Thursday, 2nd estimate GDP numbers are due out alongside jobless claims and core durable goods orders.

Barring any revisions from 1st estimate GDP numbers, expect the jobless claims figure to be key.

At the end of the week, personal spending, inflation, and consumer sentiment figures will also influence.

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