European Equities: A Week in Review – 22/01/21

The Majors

It was a mixed week for the European majors, following a fall across the markets in the week prior.

The DAX30 and EuroStoxx600 rose by 0.63% and by 0.17% respectively, while the CAC40 fell by 0.93%.

A bullish start to the week had supported the European majors, with economic data from China and U.S politics in focus.

Impressive 4^th GDP numbers from China set the tone for the week. Expectations of more fiscal stimulus to support a U.S economic recovery also delivered support for riskier assets in the week.

In the 2^nd half of the week, economic data, the ECB, and COVID-19 updates led to a pullback from mid-week highs, however.

Private sector PMIs from France, Germany, and the Eurozone reflected the effect of extended lockdown measures.

The stats followed the ECB monetary policy decision and press conference on Thursday. While the ECB stood pat on monastery policy, ECB President Lagarde was cautious about the economic recovery. A continued rise in new COVID-19 cases and extended lockdown periods could materially hinder any economic recovery near-term.

In spite of the caution, Lagarde continued to stand by the ECB’s growth forecast of 3.9% for 2021.

News of a spike in new COVID-19 cases in China and low vaccination rates across Europe added to the gloomy end to the week.

The Stats

It was a busy week on the economic calendar.

In the 1^st half of the week, ZEW Economic Sentiment figures for Germany and the Eurozone supported the majors.

Germany’s Economic Sentiment Indicator rose from 55.0 to 61.8, with the Eurozone’s climbing from 54.4 to 58.3 in January.

At the end of the week, January’s prelim private sector PMIs drew plenty of attention.

From France, the manufacturing PMI rose from 51.1 to a 6-month high 51.5. Economists had forecasted a decline to 50.5. The Services PMI fell from 49.1 to 46.5, which was worse than a forecasted decline to 48.5.

Germany’s manufacturing PMI fell from 58.3 to a 4-month low 57.0, versus a forecasted 57.5. The services sector also contracted at a faster pace, with the PMI falling from 47.0 to a 2-month low 46.8. Economists had forecast a decline to 45.3, however.

With both France and Germany’s composite PMIs in decline, the Eurozone’s composite PMI fell from 49.1 to a 2-month low 47.5. Economists had forecasted a decline to 47.6.

The manufacturing PMI fell from 55.2 to 54.7, with the services PMI falling from 46.4 to 45.0. Economists had forecast declines of 54.5 and 44.5 respectively.

Other stats included finalized inflation figures and wholesale inflation figures that had a muted impact on the majors.

From the U.S

Economic data was on the quieter side.

Key stats included the weekly jobless claims figures and private sector PMI numbers for January.

In the week ending 15^th January, initial jobless claims slipped from 926k to 900k. While on a downward trend claims remained elevated, which will continue to weigh on consumption.

Private sector activity picked up, however, supported a pullback in the Dollar.

In January, the Philly FED Manufacturing PMI climbed from 11.1 to 26.5, with the employment sub-index jumping from 5.6 to 22.5.

The Markit survey figures for the U.S also reflected improving economic conditions. According to prelim figures, the manufacturing PMI rose from 57.1 to 59.1, with the Services PMI increasing from 54.8 to 57.5.

Other stats included housing sector figures that had a muted impact on the markets.

From elsewhere, economic data from China also supported.

In the 4^th quarter, China’s economy expanded by 2.6%, following 2.7% growth in the 3^rd quarter. Year-on-year, the economy expanded by 6.5%, a marked pick up from 4.9% growth in the 3^rd quarter.

News of a spike in new COVID-19 cases in China limited the impact of the numbers on riskier assets, however.

China’s industrial production and fixed asset investment figures for December were also positive for riskier assets.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Volkswagen surged by 9.21%, with Daimler rallying by 5.07%. BMW and Continental saw more modest gains of 3.40% and 2.29% respectively.

While manufacturing sector activity slowed in Germany, the unveiling of Mercedes-Benz’s compact electric SUV supported the sector.

It was a mixed week for the banking sector, however. Deutsche Bank slid by 7.48%, while Commerzbank rose by 2.29%.

From the CAC, it was another bearish week for the banks. Soc Gen slid by 5.71%, with BNP Paribas and Credit Agricole falling by 3.06% and by 2.55% respectively.

It was a bullish week for the French auto sector. Renault rose by 1.03%, partially reversing a 7.01% slide from the previous week.

Air France-KLM reversed last week’s 4.46% gain, sliding by 7.48%, with Airbus ending the week down by 4.02%

On the VIX Index

It was back into the red for the VIX. In the week ending 22^nd January, the VIX fell by 9.98%. Partially reversing a 12.89% jump from the previous week, the VIX ended the week at 21.91.

For the week, NASDAQ rallied by 4.19%, with the Dow and S&P500 rising by 0.59% and by 1.94% respectively.

Corporate earnings delivered the NASDAQ with a boost to fresh record highs.

Expectations of further fiscal support from the U.S administration also supported riskier assets in the week.

A continued rise in new COVID-19 cases and low vaccination rates remained a concern, however.

The Week Ahead

It’s a busy week ahead on the economic calendar. Key stats from the Eurozone include January business and consumer confidence figures in the 1^st half of the week.

At the end of the week, however, the focus will shift to 4^th quarter GDP figures for France, Germany, and Spain.

With new COVID-19 cases continuing to rise across Europe, the 4^th quarter figures could be a guide of what to expect in the 1^st quarter.

Low vaccination rates across the Eurozone suggest more economic fallout from the COVID-19 pandemic before any recovery.

Other stats on Friday will include French consumer spending and German unemployment figures. Barring particularly dire numbers, however, the stats will likely have limited impact on the majors.

From the U.S, it’s a particularly busy week ahead.

Key stats will include consumer confidence, core durable goods orders, GDP numbers and the weekly jobless claims figures.

At the end of the week, December, inflation and personal spending numbers will also draw attention.

On the monetary policy front, the FED is also in action after the European close on Wednesday. Forward guidance will be a key driver on Thursday.

Away from the economic calendar, COVID-19 news and chatter from Capitol Hill will remain key drivers.

A marked pickup in vaccination rates across the Eurozone and a fall in the number of new daily cases would support the majors…

Expect chatter on fiscal stimulus from Capitol Hill to also influence.