European Equities: A Week in Review – 25/07/20U.S – China tensions overshadowed positive economic data and the agreement on the EU Recovery Fund as Trump contained to divert attention from COVID-19.
It was a bearish week for the European majors in the week ending 24th July. The CAC40 and EuroStoxx600 fell by 2.23% and 1.45% respectively, with the DAX30 seeing a loss of 0.63%.
A Friday sell-off delivered the losses for the week, with the DAX30 sliding by 2.02% to lead the way down on Friday.
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It was a mixed week for the majors. EU member states agreeing on the mechanics of the EU Recovery Fund had delivered an early boost.
Further news of progress towards a COVID-19 vaccine had also provided the majors with support earlier in the week.
Rising tensions between the U.S and China ultimately weighed, however.
Mid-week, the U.S accused China of hacking U.S companies, leading to the U.S administration’s order for China to shut down its Houston consulate.
At the end of the week, China announced that it was shutting down the U.S consulate in Chengdu in retaliation.
The latest U.S – China spat overshadowed some positive stats from the Eurozone at the end of the week. While news of progress towards a COVID-19 vaccine was positive, a continued rise in new cases was also negative for the majors.
It was a relatively busy week on the Eurozone economic calendar.
Key stats included consumer confidence figures from Germany and the Eurozone and July’s prelim private sector PMIs.
Germany’s GfK Consumer Climate indicator rose by 9 points to -0.3 for August, providing early support to the DAX30.
By contrast, the consumer confidence across the Eurozone weakened, with the indicator falling from -14.7 to -15.0 in July.
While the stats were mixed on Thursday, it was a positive set of prelim private sector PMIs on Friday.
The Eurozone’s manufacturing PMI rose from 47.4 to 51.1, with the services PMI jumping from 48.3 to 55.1.
From France, the manufacturing PMI slipped from 52.3 to 52.0, while the services PMI rose from 50.7 to 57.8.
Out of Germany, the manufacturing PMI rose from 45.2 to 50.0, with the services PMI increasing from 47.3 to 56.7.
Supported by a marked improvement in service sector activity, the Eurozone’s Composite PMI jumped from 48.5 to 54.8.
From the U.S
The stats were less impressive. On Thursday, the weekly initial jobless claims rose by 1.416m in the week ending 17th July. Economists had forecast a 1.3m rise following the previous week’s 1.307m increase.
Service sector activity continued to contract in July, with the PMI rising from 47.9 to 49.6. Economists had forecast a rise to 51.0. The Manufacturing PMI also disappointed, with a rise from 49.8 to 51.3 falling short of a forecasted 51.5.
The Market Movers
From the DAX, it was a mixed week for the auto sector. Continental rallied by 3.75% to lead the way. BMW and Daimler also found support, with gains of 0.79% and 1.12% respectively. Volkswagen bucked the trend, however, falling by 1.95%.
Continental found support following the release of its quarterly earnings. A positive outlook delivered the upside.
It was a bearish week for the banking sector, however. Commerzbank fell by 1.08%, with Deutsche Bank sliding by 5.50%.
From the CAC, it was also a bearish week for the banks. Soc Gen tumbled by 6.43% to lead the way down. BNP Paribas and Credit Agricole saw relatively more modest losses of 2.19% and 2.20% respectively.
It was another bullish week for the French auto sector, however. Peugeot and Renault ended the week with gains of 1.16% and 5.78% respectively.
Air France-KLM and Airbus reversed gains from the previous week, with losses of 3.63% and 2.99% respectively.
On the VIX Index
A run of 5 consecutive weeks in the red came to an end for the VIX. In the week ending 24th July, the VIX rose by 0.62%. Partially reversing a 5.90% decline from the previous week, the VIX ended the week at 25.84.
The S&P500 and the Dow ended the week down by 0.28% and by 0.76%, while the NASDAQ fell by 1.33%.
It was the 1st week in the red in 4 weeks for the S&P500, while the NASDAQ saw red for a 2nd consecutive week.
Over the week, rising tensions between the U.S and China and disappointing employment figures weighed on the majors.
Adding to the negative sentiment was news of Trump sending Federal agents into a number of U.S states to maintain law and order. A continued rise in new COVID-19 cases didn’t help.
The losses were modest, however, with news of progress towards a COVID-19 vaccine delivering support.
The Week Ahead
It’s a particularly busy week on the Eurozone economic calendar.
It’s a quiet start to the week, however. Key stats include July’s Ifo Business Climate figures out of Germany on Monday.
The markets will then need to look ahead to 2nd quarter GDP and July unemployment figures from Germany on Thursday.
At the end of the week, French and Spanish 2nd quarter GDP numbers and French and German retail sales for June figures are also due.
From the U.S
It is also a particularly busy week ahead.
Key stats include July durable goods and consumer confidence figures on Monday and Tuesday.
On Thursday, the weekly jobless claims and 2nd quarter GDP numbers will also influence.
At the end of the week, July’s Chicago PMI, consumer sentiment, and June personal spending figures will garner interest.
On the monetary policy front, the FED is in action on Wednesday after the European close.
Private sector PMIs from China will also influence at the end of the week.
Away from the economic calendar, however, COVID-19 news and chatter from Beijing and Washington will need monitoring.
Expect the majors to remain under pressure should either Beijing or Washington make any retaliatory moves.