European Equities: A Week in Review – 23/10/20
It was another bearish week for the European majors in the week ending 23rd October. The DAX30 slid by 2.04%, with the CAC40 and EuroStoxx600 ending the week down by 0.53% and by 1.36% respectively.
Failure to deliver a U.S stimulus package in the week weighed on the majors in the week.
Adding to the downside was a surge in new COVID-19 cases, as EU member states reintroduced containment measures.
A bullish end to the week reduced the downside, however, with earnings from Barclays delivering strong support to the banking sector.
From the economic calendar, it was a mixed bag. Consumer confidence and service sector activity raised yet more red flags over the economic recovery. By contrast, manufacturing sector activity picked up in Germany. Germany’s Manufacturing Output Index hit a 116-month high, with the PMI hitting a 30-month high.
It was a relatively busy week on the Eurozone economic calendar.
In the early part of the week, German wholesale inflation figures for September had a muted impact on the majors.
On Thursday, consumer confidence figures from Germany and the Eurozone did weigh, however. The disappointing numbers delivered a 4th consecutive day in the red for the DAX30 and the EuroStoxx600.
For November, Germany’s GfK Consumer Climate indicator came in at -3.1, which was down from -1.7% in October.
The Eurozone’s Consumer Confidence Indicator fell from -13.9 to -15.5.
Concerns over the 2nd wave of the COVID-19 pandemic weighed on consumer confidence in October.
Private sector PMIs from the Eurozone delivered mixed signals on Friday.
While service sector activity contracted at a faster pace, the manufacturing sector found much-needed support in October.
France’s manufacturing PMI slipped from 51.2 to 51.0, while the Services PMI declined from 47.5 to 46.5. Both PMIs fell to 5-month lows in October, according to prelim figures.
From Germany, the Manufacturing PMI jumped from 56.4 to a 30-month high 58.0. By contrast, the Services PMI fell from 50.6 to a 4-month low 48.9.
For the Eurozone, the Manufacturing PMI rose from 53.7 to a 26-month high 54.4, while the Services PMI declined from 48.0 to a 5-month low 46.2.
As a result of the deeper contraction in the services sector, the Eurozone’s Composite PMI fell from 50.4 to a 4-month low 49.4.
According to the Eurozone’s prelim October Survey,
- Business activity fell back into decline. An acceleration in manufacturing sector activity was overshadowed by a marked deterioration in service sector activity.
- Rising concerns over the COVID-19 pandemic weighed on the services sector in the month, as a 2nd wave continued to hit the EU.
- While the pace of job losses eased, the rate of job losses remained higher than at any time since June 2013 prior to the pandemic.
- Inflows of new business showed a renewed decline at the start of the quarter.
- For the manufacturing sector, new orders surged at the quickest pace since January 2018. Inflows of new business into the service sector, however, fell at an accelerated rate.
- Deflationary pressures eased, as costs increased at a faster pace.
- Private sector confidence over the year ahead fell to the lowest level since May, with France the least optimistic.
From the U.S
It was a quieter week on the economic data front.
Key stats included the weekly jobless claims and prelim October private sector PMIs.
Better than expected initial jobless claims failed to support the European majors on Thursday. In the week ending 16th October, initial jobless claims stood at 787k. While down from the previous week’s 842k, it was still at significantly high levels by historical standards.
On Friday, private sector activity delivered positive news, however.
The Manufacturing PMI rose from 53.2 to 53.3, with the all-important Services PMI jumping from 54.6 to 56.0.
Economic data from China also failed to provide support to the European majors, in spite of some positive numbers.
In October, industrial production, retail sales, unemployment figures delivered further evidence of China’s continued economic recovery.
For the 3rd quarter, China’s economy grew by 4.9%, quarter-on-quarter, following 3.2% growth in the 2nd quarter. Year-on-year, the economy grew by 2.7%, following an 11.5% surge in the 2nd quarter.
While the GDP figures were positive, both came up short of forecasts, however.
The Market Movers
From the DAX, it was a mixed week for the auto sector. BMW rose by 1.42% to lead the way, with Continental and Volkswagen seeing gains of 0.85% and 0.87% respectively. Daimler bucked the trend in the week, however, falling by 1.67%.
It was a bullish week for the banking sector, however. Commerzbank rallied by 5.93%, with Deutsche Bank ending the week up by 3.44%.
From the CAC, it was a bullish week for the banks after last week’s heavy losses. BNP Paribas and Soc Gen rallied by 4.00% and by 5.72% respectively. Credit Agricole saw a more modest 2.45% gain.
The French auto sector saw green. Peugeot rose by 2.80%, with Renault rallying by 3.81%.
Air France-KLM rallied by 9.63%, with Airbus rising by 5.74% to reverse last weeks’ 3.65% loss.
On the VIX Index
It was a 4th week in the green from 5 for the VIX. In the week ending 23rd October, the VIX rose by 0.51%. Following on from a 9.64% gain in the previous week, the VIX ended the week at 27.55.
A lack of progress towards a U.S Stimulus Bill and rising COVID-19 cases supported the VIX.
For the week ending 23rd October, the S&P500 and the Dow ended the week down by 0.95% and by 0.53% respectively. The NASDAQ led the way down, however, sliding by 1.06%.
The Week Ahead
It’s a busy week ahead on the Eurozone economic calendar.
In the 1st half of the week, Germany’s Ifo Business Climate figures for October will provide direction on Monday.
With the COVID-19 pandemic 2nd wave hitting the EU, deterioration in business sentiment will test support for the majors.
The focus will then shift to a busy Thursday. German unemployment numbers will influence, with the ECB also in action.
With the Eurozone seeing a surge in new COVID-19 cases and containment measures reintroduced, the ECB’s response will be key.
On Friday, French and German GDP numbers for the 3rd quarter along with French and German consumer spending figures are also in focus.
With concerns over a pickup in deflationary pressures also lingering, prelim October inflation figures will draw attention in the week.
Inflation figures from Spain, Italy, Germany, France, and the Eurozone are due out in the 2nd half of the week.
From the U.S, consumer confidence and core durable goods orders are in focus in the 1st half of the week. In the 2nd half, 3rd quarter GDP, inflation, and personal spending figures will also influence.
Away from the economic calendar, U.S politics, COVID-19, and Brexit will remain key drivers in the week, however.