European Equities: A Week in Review – 25/01/20It was a mixed week for the majors. While market sentiment towards the coronavirus weighed, hopes of a turnaround in Germany provided support.
It was a mixed week for the European majors in the week ending 24th January. The CAC40 and EuroStoxx600 fell by 1.25% and by 0.22% respectively, while the DAX30 rose by 0.37%.
Economic data provided support for the DAX to close out the week in the green. A dovish ECB and market concerns over the coronavirus tested the broader market, however.
A delayed reaction to the spread of the coronavirus led to a pullback on Tuesday, ahead of Thursday’s ECB monetary policy decision.
On Thursday, while the ECB held policy unchanged, Lagarde pinned back the majors, talking of risks remaining tilted to the downside.
The ECB President also noted that inflationary pressures remained subdued and that weaker international trade remained a key risk to global growth.
It was a relatively busy week on the Eurozone economic calendar.
Through the 1st half of the week, stats were limited to Germany and the Eurozone’s ZEW Economic Sentiment figures for January.
The numbers impressed, with Germany’s Economic Sentiment Index rising from 10.7 to 26.7 and the Eurozone’s index rising from 11.2 to 25.6. While the CAC40 and EuroStoxx600 struggled on Tuesday, the DAX closed out in positive territory, supported by the positive numbers.
On Thursday, disappointing consumer confidence figures out of the Eurozone had a muted impact, with the ECB doing the damage.
The Eurozone’s consumer confidence indicator held steady at -8.1, which was worse than a forecast of -7.6.
With the ECB dovish on growth, the focus then shifted to prelim January private sector PMIs for France, Germany, and the Eurozone.
The DAX30 got another boost, rallying by 1.41% on Friday, with better than expected PMI numbers providing support.
While Germany’s PMI bounced, the Eurozone’s composite held steady at 50.9, with weaker growth in France’s services sector weighing.
In spite of France’s composite PMI falling from 52.0 to 51.5, it was still better than elsewhere, with the rest of the Eurozone seeing output growth slow to a six-and-a-half-year low.
The broader numbers may have painted a lackluster picture, but with confidence hitting a 16-month high, the ECB’s accommodative measures may continue to support the recovery.
From elsewhere, a jump in service sector activity in the U.S was also positive for the majors at the end of the week.
The Market Movers
From the DAX, it was another bearish week for the auto sector. Continental and Daimler led the way down, sliding by 10.29% and by 6.44% respectively. BMW and Volkswagen saw more modest losses of 3.36% and 2.78% respectively.
It was a mixed week for the banking sector, however. Deutsche Bank rose by 1.84%, while Commerzbank fell by 2.65%.
From the CAC, it was a bearish week for the banks. BNP Paribas and Soc Gen fell by 1.66% and by 1.50% respectively, while Credit Agricole slid by 2.33%.
The French auto sector also struggled in the week, with Peugeot and Renault sliding by 2.68% and by 7.62% respectively.
Citigroup downgraded Renault in the week. Cash flow issues were identified, which raised the chances of the sale of its stake in Nissan.
With the coronavirus influencing the majors in the week, airline stocks were at the mercy of the news wires.
Germany’s Lufthansa fell by 5.64% in the week, with Air France-KLM sliding by 9.7%.
On the VIX Index
The VIX Index saw green in the week ending 24th January. Following 2 consecutive weeks in the red, the VIX rose by 20.33% to end the week at 14.6.
The lion’s share of the gains came off the back of a 12.17% gain on Friday. The gain came in spite of positive stats at the end of the week.
It was news of the spread of the coronavirus that ultimately provided the upside in the week.
The Week Ahead
It’s a relatively busy week on the Eurozone economic calendar. On Monday, key stats include Germany’s IFO Business Climate Index. The focus will then shift to Germany’s GfK Consumer Climate figures due out on Wednesday.
In the 2nd half of the week, Germany and the Eurozone’s unemployment figures are due out on Thursday.
At the end of the week, French, Spanish, and Eurozone 4th quarter GDP figures and consumer spending numbers out of France and Germany will also provide direction.
From the U.S, a busy economic calendar throughout the week will also influence. Consumer confidence and 4th quarter GDP numbers are likely to have the greatest impact.
The FED is also in action after the European close on Wednesday. Any dovish chatter would overshadow the numbers in the week.
While the stats and monetary policy will provide direction, it may ultimately hinge on whether the spread of the coronavirus is contained…