European Equities: A Week in Review – 25/06/21

The Majors

It was a bullish week for the majors in the week ending 25^th June.

The DAX30 and the EuroStoxx600 ended the week up by 1.04% and by 1.23% respectively, with the CAC40 rising by 0.82%.

Economic data from the Eurozone coupled with assurances from ECB President Lagarde delivered the majors with support.

Some positive market chatter from FED Chair Powell during COVID-19 testimony early in the week added to the upside. Powell, delivering testimony to lawmakers, highlighted that inflation alone would not be enough to cause a shift in monetary policy. Slack in the labor market would also need to be removed to support a more hawkish stance. The FED Chair also continued to note that inflationary pressures were likely to be transitory.

From the ECB, June’s Economic Bulletin also delivered, with the ECB talking of a pickup in economic growth in the 2^nd half of the year. While optimistic, the ECB also talked of the need for unwavering monetary policy support.

The combination was aligned with the markets optimistic outlook and hope of continued ECB monetary policy support.

From the U.S, news on Thursday of an infrastructure deal on Capitol Hill was another plus for the bulls late in the week.

The Stats

Consumer confidence figures on Tuesday improved marginally in June, providing support.

On Wednesday, private sector PMIs for June were positive, however.

Germany’s manufacturing PMI rose from 64.4 to 64.9, with the services PMI increasing from 52.8 to 58.1.

France’s services PMI was also on the rise, increasing from 56.6 to 57.4. Manufacturing sector growth slowed, however, with the PMI falling from 59.4 to 58.6.

As a result, the Eurozone’s manufacturing PMI held steady at 63.1, while the services PMI increased from 55.2 to 58.0.

The pickup in service sector activity drove the composite PMI to a 180-month high 59.2.

In the second half of the week, business and consumer sentiment figures for Germany were in focus.

In June, the Ifo Business Climate Index rose from 99.2 to 101.8 in June. Economists had forecast an increase to 100.6.

The Business Expectations sub-index increased from 102.9 to 104.0, with the Current Assessment sub-index climbing from 95.7 to 99.6. Economists had forecasted increases to 103.9 and to 97.8 respectively.

For July, the GfK consumer climate indicator increased from -6.9 to -0.3, coming in ahead of a forecasted -4.0. The pickup in consumer confidence supported the ECB’s outlook on consumer spending.

The ECB

On the monetary policy front, ECB President Lagarde delivered an optimistic outlook on the economy early in the week.

The ECB’s Economic Bulletin also drew attention on Thursday.

Salient points from the Bulletin included:

• The latest data signal a bounce-back in services activity and ongoing dynamism in manufacturing production.
• Economic activity is expected to accelerate in the 2^nd half of this year, as further containment measures are lifted.
• A pickup in consumer spending, strong global demand, and accommodative fiscal and monetary policies will lend crucial support to the recovery.
• Uncertainties remain, however, as the near-term economic outlook continues to depend on the course of the pandemic and on how the economy responds after reopening.
• Inflation has picked up as a result of transitory factor and an increase in energy prices. It is expected to rise further through the 2^nd half of the year before declining as temporary factors fade out.
• Headline inflation is expected to remain below the Governing Council’s aim over the projection horizon.

From the U.S

The markets had to wait until Wednesday for June’s prelim private sector PMI numbers.

It was a mixed bag for the markets. While manufacturing sector activity picked up, the pace of service sector growth slowed in June.

The services PMI fell from 70.4 to 64.8, while the manufacturing PMI rose from 62.1 to 62.6.

On Thursday, core durable goods and jobless claims figures disappointed. In the week ending 18^th June, initial jobless claims saw a modest decline from 418k to 411k.

Core durable goods orders failed to impress, rising by just 0.3%. Economists had forecast a 0.8% rise off the back of a 1.7% jump in April.

At the end of the week, the focus then shifted to inflation and personal spending figures.

In May, personal spending stalled, falling short of a forecasted 0.4% rise. In April, spending had risen by 0.9%.

Inflationary pressures were on the rise, however, aligned with market expectations. The FED’s preferred Core PCE Price Index rose by 3.4% year-on-year, following a 3.1% increase in April. This was in line with forecasts.

Other stats included finalized consumer sentiment and expectation figures that had a muted impact on the markets.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen fell by 1.19% to buck the trend. BMW and Daimler ended the week up by 1.23% and by 0.74% respectively, with Continental gaining 2.68%.

It was a bullish week for the banking sector. Deutsche Bank and Commerzbank rose by 1.46% and by 1.79% respectively.

From the CAC, it was a bullish week for the banks. BNP Paribas and Credit Agricole rose by 1.34% and by 1.27% respectively, with Soc Gen gaining by 1.56%.

It was a mixed week for the French auto sector, however. Stellantis NV rallied by 3.63%, while Renault slipped by 0.06%.

Air France-KLM and Airbus ended the week down by 4.43% and by 2.13% respectively.

On the VIX Index

It was back into the red for the VIX, marking a 4^th weekly loss in 5-weeks. In the week ending 25^th June, the VIX slid by 24.54%. Partially reversing a 32.27% jump from the previous week, the VIX ended the week at 15.62.

5-days in the red from 5 sessions, which included an 13.57% slide on Monday delivered the downside in the week.

For the week, the Dow rallied by 3.44%, with the NASDAQ and the S&P500 ending the week up by 2.35% and by 2.74% respectively.

The Week Ahead

It’s a busy week ahead on the economic calendar.

Eurozone economic sentiment figures kick things off on Tuesday along with prelim inflation figures from Germany.

The focus will then shift to French consumer spending and German unemployment figures on Wednesday.

With the ECB expecting a consumer driven economic pickup in Q2, both sets of numbers will need to be positive.

On Wednesday, prelim Eurozone inflation figures for June will also influence, however.

Manufacturing sector activity becomes the area of focus on Thursday. Manufacturing PMIs for Italy and Spain are due out along with finalized numbers for France, Germany, and the Eurozone.

Barring marked revisions to prelim numbers, expect Italy and the Eurozone’s PMIs to have the greatest impact.

Later in the day on Thursday, unemployment numbers for the Eurozone will also draw interest.

At the end of the week, German retail sales wrap things up…

From the U.S, consumer confidence, weekly jobless claims, ISM manufacturing PMIs, and nonfarm payrolls will provide direction.

Manufacturing PMI numbers from China will also provide riskier assets with direction in the week, however.

On the monetary policy front, FOMC and ECB member chatter will need monitoring in the week.