European Equities: A Week in Review – 22/04/22

The Majors

It was a mixed week for the European majors in the week ending April-22, 2022.

The EuroStoxx600 slid by 1.42%, with the CAC40 and the DAX seeing losses of 0.12% and 0.15%, respectively.

Stats from China at the start of the week set the tone, leaving the majors in the red after the Monday holidays.

In Q1, the economy grew by 1.3%, which was softer than 1.5% in Q2. Year-on-year, the economy grew by 4.8%, picking up from 4.0% in the quarter prior.

The downward trend in industrial production continued with production up by 5.0% year-on-year. In February, industrial production increased by 7.5%.

Fed Chair Powell chatter drove Treasury yields northwards to leave the majors searching for support on Friday.

Economic data from the Eurozone was relatively upbeat but not good enough to offset concerns over supply chain disruption.

The ongoing war in Ukraine and China’s introduction of new COVID-19 restrictions added to the market angst.

The Stats

Early in the week, the Eurozone economy was in the spotlight.

The stats were market positive, though not good enough to counter hawkish Fed Chair Powell chatter from later in the week.

In February, industrial production rose by 0.7%, reversing a 0.7% decline from January. Trade data was also positive, with the trade deficit narrowing from €27.3bn to €7.6bn.

Consumer confidence was also on the rise, despite the ongoing war in Ukraine.

At the end of the week, prelim private sector PMIs for April disappointed. Germany’s manufacturing PMI declined from 56.9 to 54.1, leaving the Eurozone Manufacturing PMI down from 56.5 to a 15-month low of 55.3.

Service sector activity accelerated due to easing COVID-19 restrictions, supporting a rise in the composite PMI from 54.9 to 55.8.

From the U.S

It was a quiet start to the week, with the markets needing to wait until Thursday for the key numbers.

It was a mixed set of numbers. Jobless claims fell from 186k to 184k in the week ending April 15. The Philly Fed Manufacturing Index disappointed, however, falling from 27.4 to 17.6.

On Friday, prelim private sector PMIs for April also drew interest.

The Manufacturing PMI increased from 58.8 to 59.7, while the Services PMI declined from 58.0 to 54.7.

The mixed set of numbers came amidst some hawkish Fed Chair Powell chatter.

On Thursday, Fed Chair Powell spoke at the Annual Economic Policy Conference National Association for Business Economics.

There were two key takeaways from the Powell speech. Firstly, the prospect of a fifty-basis point rate hike.

Discussing restoring price stability, Powell said,

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or in meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”

Secondly, Powell talked of the challenges of bringing down inflation without bringing down the economy.

Concerning growth, Powell said,

“I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context – very little is straightforward in the current context. My colleagues and I will do our very best to succeed in this challenging task.”

The combination of a more rapid move to policy-neutral and possible beyond and the threat of recession weighed on riskier assets.

The Market Movers

From the DAX, it was a bullish week for the auto sector. BMW and Continental rallied by 2.99% and 3.31%, respectively. Daimler and Volkswagen ended the week with gains of 2.23% and 2.39%, respectively.

It was also a bullish week for the banking sector. Deutsche Bank rose by 0.44%, with Commerzbank rallying by 5.10%.

From the CAC, it was another bullish week for the banks. BNP Paribas rose by 4.48%, with Credit Agricole and Soc Gen seeing gains of 5.11% and 5.21%, respectively.

It was a mixed week for the French auto sector. Stellantis NV slid by 6.54%, while Renault ended the week up 4.41%.

Air France-KLM gained 0.49%, while Airbus ended the week with a 1.38% loss.

On the VIX Index

It was a third consecutive week in the green for the VIX in the week ending April-22.

Following a 7.28% gain from the previous week, the VIX jumped by 24.27% to end the week at 22.70.

2-days in the green from 5 sessions, which included an 11.61% rise on Thursday and a 24.38% surge on Friday delivered the upside.

In the week, the NASDAQ slumped by 3.83%, with the Dow and the S&P500 falling by 1.86% and 2.75%, respectively.

The Week Ahead

It is a quieter week ahead on the Eurozone economic calendar.

At the start of the week, German business sentiment will provide direction. Expect another slide to test support for the majors.

On Wednesday, German consumer sentiment figures will also influence ahead of Q1 GDP numbers on Friday.

GDP numbers from France, Germany, and Spain will be key at the end of the week.

From the U.S, Core durable goods and consumer confidence figures will draw attention on Tuesday. Expect consumer confidence to have a greater influence.

On Thursday, the market focus will shift to Q1 GDP and weekly jobless claims. Barring a spike in jobless claims, the GDP numbers will be key.

At the end of the week, inflation and personal spending will wrap up the week.

From China, expect private sector PMIs to also influence at the end of the week.

Away from the economic calendar, corporate earnings and the war in Ukraine will continue to provide direction.