European Equities: A Week in Review – 22/08/20

The Majors

It was a relatively bearish week for the European majors in the week ending 21^st August. The CAC40 fell by 1.34%, with the DAX30 and EuroStoxx600 seeing losses of 1.06% and 0.81% respectively.

Through the 1^st half of the week, the European majors had found support before hitting reverse on Thursday and Friday.

A combination of gloomy monetary policy meeting minutes from the FED and the ECB and particularly disappointing private sector PMIs for August left the majors in the red.

Geopolitics also tested the European majors in the week. Rising tensions between the U.S and China had pinned the majors back earlier in the week.

The Stats

It was another busy week on the Eurozone economic calendar.

In the 1^st half of the week, stats included finalized July inflation figures for the Eurozone. There was little interest in the numbers on Wednesday, however, which came ahead of the FOMC meeting minutes.

On Thursday, wholesale inflation figures for Germany also had a muted impact on the majors.

At the end of the week, disappointing private sector PMIs from France, Germany, and the Eurozone added to the downside for the week.

The Eurozone’s manufacturing PMI fell from 51.8 to 51.7, with the services PMI sliding from 54.7 to 50.1. As a result, the Composite slid from 54.9 to 51.6.

According to the prelim Markit Survey,

• The Composite PMI fell to a 2-month low, with manufacturing and services PMIs also seeing 2-month lows.
• A rise in new COVID-19 cases contributed to the downturn.
• Business activity and new orders rose modestly, and at slower rates than in July.
• While new orders increased for a 2^nd consecutive month, new export orders fell. Travel restrictions due to a jump in new COVID-19 cases weighed on new business from abroad for service providers.
• Companies across the Eurozone continued to reduce workforce numbers.
• While the focus has been on service sector activity, the one highlight was a sharp rise in manufacturing production. The Manufacturing PMI Output Index rose to a 28-month high in August.
• At the composite level, weakness in the service sector weighed in August.

From the U.S

It was a mixed week on the economic data front.

Key stats included August manufacturing data from NY State and Philly, the weekly jobless claims, and prelim private sector PMIs.

Both NY State and Philly reported a marked slowdown in manufacturing sector growth in August. Adding to the negative sentiment was the first rise in jobless claims in 3-weeks.

Prelim private sector PMIs provided some comfort, however. The all-important Services PMI rose from 50.0 to a 17-month high 54.8. Manufacturing sector activity also picked up, with the PMI rising from 50.9 to a 19-month high 53.6.

Monetary Policy

Ahead of the private sector PMIs, the FOMC meeting minutes weighed on the European majors.

The FED delivered a gloomy picture after the European close on Wednesday. It wasn’t much better from the ECB, who talked of plenty of uncertainty ahead.

Friday’s disappointing PMI numbers from the Eurozone supported the ECB’s concerns…

The Market Movers

From the DAX, it was a particularly bearish week for the auto sector. Continental slid by 4.96%, with BMW and Daimler seeing losses of 2.12% and 1.89% respectively. Volkswagen saw a more modest loss of 1.39% in the week.

It was also a bearish week for the banking sector. Commerzbank and Deutsche Bank slid by 3.83% and by 3.12% respectively.

From the CAC, it was a bearish week for the banks. Credit Agricole and Soc Gen led the way down, with losses of 5.23% and 5.61% respectively. BNP Paribas wasn’t far behind, declining by 3.55%.

Things were not much better for the French auto sector. Peugeot and Renault slid by 4.97% and by 5.77% respectively.

Air France-KLM fell by 2.38%, while Airbus slid by 4.20%.

On the VIX Index

A run of 3 consecutive weeks in the red came to an end for the VIX, which rose by 2.22%. Reversing a 0.36% loss from the previous week, the VIX ended the week of 21^st August at 22.54.

The weekly gain was only the 2^nd in 10-weeks.

The S&P500 and the NASDAQ ended the week up by 0.72% and by 2.65% respectively, while the Dow was flat for the week.

It was a mixed week on the economic data front. Disappointing jobless claims and manufacturing numbers from NY State and Philly were offset by positive private sector PMIs on Friday.

On the monetary policy front, the FOMC meeting minutes had pinned back the majors on Wednesday, ahead of Thursday and Friday’s numbers.

For the S&P500 and the NASDAQ, however, it was Trump’s battle with China’s tech companies that delivered support.

Away from the economic calendar, there was plenty for the markets to consider. Rising tensions between the U.S and China and a lack of progress on the COVID-19 stimulus package that supported the VIX.

The Week Ahead

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

In the 1^st half of the week, Germany is on focus. 2^nd estimate GDP numbers for the 2^nd quarter and August’s IFO Business Climate Index figures will influence.

The markets will be looking for an upward revision to the 1^st estimate numbers. Last week’s PMIs may temper any impact, however.

The focus will then shift to Germany’s GfK consumer climate figures and French consumer spending and GDP numbers on Friday.

An upward revision to French GDP numbers and a rise in consumer spending would be needed at a minimum.

Any marked deterioration in German consumer confidence would likely overshadow in positive numbers from France, however.

From the U.S

It is another busy week ahead.

In the 1^st half of the week, consumer confidence and core durable goods orders will be key drivers. The focus will then shift to the weekly jobless claims and 2^nd quarter GDP numbers due out on Thursday.

At the end of the week, July inflation and personal spending figures, along with finalized consumer sentiment figures will also draw interest.

Away from the Calendar

Geopolitics will remain in focus. There’s Brexit, U.S – China tensions, and the U.S stimulus package to track.

COVID-19 will remain another area of focus. Expect any new spikes to test market risk appetite.