European Equities: A Week in Review – 21/12/19

The Majors

It was a bullish week for the European equity majors in the week ending 19^th December, with the CAC40 gaining 1.73% to lead the way.

The EuroStoxx600 wasn’t far behind, rising by 1.55% to hit a new record high, while the DAX30 increased by a more modest 0.27% in the week.

Negative sentiment towards Brexit pressured the majors through the week, with the DAX30 needing a 0.81% gain on Friday to reverse losses from mid-week.

Boris Johnson’s plan to amend the Brexit Bill to prevent any extension to the transition phase pinned the majors and the Pound back.

In spite of the negative sentiment towards Brexit, support kicked in on Friday. News of the U.S – China phase 1 agreement being signed in early January delivered on the day.

The Stats

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

Key stats included December prelim private sector PMI numbers from France, Germany, and the Eurozone on Monday.

The Eurozone Markit Composite PMI rose from 50.6 to 50.8 in December, according to prelim figures. The Eurozone Manufacturing PMI decreased from 46.9 to 45.9 in December, while the Eurozone Services PMI rose from 51.9 to 52.4.

• Service sector activity hit a 4-month high, while the manufacturing output index fell to an 86-month low.

On Tuesday, the Eurozone’s trade surplus saw a sizeable widening in October, driven by strong exports to non-EU countries.

The impact on the majors was muted, however, with geopolitics weighing.

On Wednesday, German business sentiment figures for December also failed to move the dial, in spite of the improvement in both the current assessment and outlook.

The Eurozone’s finalized inflation figures for November also had a muted impact, with the annual rate of core inflation of 1.3% being in line with prelim and forecasts.

With no economic data out of the Eurozone on Thursday, focus then shifted to German and Eurozone consumer confidence figures on Friday.

Out of Germany, the GfK German Consumer Climate Index fell from 9.7 to 9.6, with both economic and income expectations weighing, while propensity to buy increased. In spite of negative views towards the economy, the willingness to continue spending will be key for the ECB.

For the Eurozone, the Eurozone’s consumer confidence indicator fell from -7.2 to -8.0 in December, reversing gains from November. In spite of the decline, the indicator remained above the long-term average of -10.6. It was the lowest reading since January, however, when the indicator sat at -8.3%.

From elsewhere

Economic data out of China also provided support, with industrial production delivering at the start of the week.

Stats out of the U.S were also skewed to the positive, with consumer sentiment and personal spending on the rise. Service sector activity also picked up in December, which was key at the start of the week. While the combination was negative for the EUR, it was equity market positive.

The Market Movers

From the DAX, it was a bearish week for the auto sector. Volkswagen led the way, sliding by 3.79%. BMW, Continental, and Daimler, also struggled. BMW and Continental fell by 2.28% and by 2.81% respectively, while Daimler saw a more modest 1.48% loss.

It was another bullish week for the banking sector, however. Deutsche Bank rallied by 4.47%, with Commerzbank gaining 2.01%.

From the CAC, it was also a positive week for the banks. While Credit Agricole ended the week flat, Soc Gen and BNP Paribas rose by 3.63% and by 2.90% respectively.

For the French auto sector, it was a bullish week, with Peugeot and Renault rising by 1.69% and by 3.49% respectively.

On the VIX Index

The VIX Index rose by 0.95% in the week ending 20^th December. Partially reversing a 7.27% fall from the previous week, the VIX ended the week at 12.5.

There was plenty to keep the markets busy throughout the week. Economic data was on the heavier side, with stats skewed to the positive for the U.S markets that hit fresh record highs.

U.S President Trump became only the 3^rd U.S President in history to be impeached and Boris Johnson laid down the law on Brexit.

While the markets brushed aside Trump’s impeachment, the British PM’s plans to amend the Brexit Bill to prevent any extensions to Britain’s transition period weighed. A vote in favor of the changes would raise the possibility of a hard-Brexit.

The Week Ahead

It’s a particularly quiet week on the Eurozone economic calendar. It’s a shortened week, with the major markets closed mid-week. The markets will need to wait ‘til Friday for the ECB’s economic bulletin.

ECB President Lagarde’s first release will garner plenty of interest that will influence with volumes on the lighter side.

There should be little to rattle the markets in the week, however, following Trump’s impeachment…