European Equities: A Week in Review – 25/10/19

The Majors

It was a positive week for the European majors. The DAX30 rose by 2.07% to lead the way, with the EuroStoxx600 and CAC40 up by 1.57% and by 1.52% respectively.

Gains from the week saw the CAC40 and EuroStoxx600 move back into positive territory for the current month. The pair were up by 0.78% and by 1.24% respectively.

In spite of dire economic data out of Germany, the DAX30 led the way, up by 3.75% going into the final week.

Sensitivity towards trade ultimately provided support as the U.S and China make some progress.

For the week, the DAX30 and EuroStoxx600 saw 5 consecutive days in the green to support the gains. The CAC40 had a minor blip on Wednesday before bouncing back.

Geopolitics and corporate earnings provided the much-needed support in the week, with economic data continuing to be skewed to the negative.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

The markets had to wait until Thursday, however, to digest any material data.

October’s private sector PMI numbers on Thursday failed to dim the mood across the broader markets.

Germany’s manufacturing sector continued to struggle, with the PMI rising from 41.7 to 41.9. Service sector activity also struggled, with the PMI easing from 51.4 to 51.2.

For the Eurozone, the manufacturing PMI held steady at 45.7, while the service sector PMI rose from 51.6 to 51.8. A slight uptick in the composite PMI from 50.1 to 50.2 came off the back of a pickup in private sector activity in France.

France’s manufacturing PMI rose from 50.1 to 50.5, with the service sector PMI rising from 51.1 to 52.9.

Things could have been worse and the fact that there was no further decline in the PMIs was positive on the day.

On Friday, German business and consumer confidence numbers pinned the DAX30 back at the end of the week.

The GfK Consumer Climate Index fell from 9.8 to 9.6, while the IFO Business Climate Index held steady at 94.6.

The Market Movers

From the DAX, it was yet another bullish week for the auto sector. Daimler led the way with an 8.8% gain, supported by positive earnings for the 3^rd quarter. Continental found strong support on Friday to end the week up by 6.13%. BMW and Volkswagen saw more modest gains of 2.74% and 1.77% respectively. A trend-bucking 1.19% fall on Friday left Volkswagen trailing the pack.

It was also a positive week for the banking sector. Deutsche Bank gained 0.85%, with Commerzbank up by 3.02%.

While positive sentiment towards trade supported the autos, continued concerns over the economic outlook pegged back bank stocks.

From the CAC, the banks also found strong support. Credit Agricole led the way, rising by 3.77%. PNP Paribas and Soc Gen saw more modest gains of 1.49% and 0.69% respectively.

A pickup in private sector activity provided strong support for the banks in the week.

French auto sector also found support While Peugeot rallied by 4.99%, supported by positive earnings for the 3^rd quarter. Renault gained just 0.97% following the previous week’s 9.06% slide. Renault’s slide had come off the back of a cut to its 2019 revenue outlook.

On the VIX Index

The VIX Index fell by 11.23% in the week ending 25^th October. Following on from an 8.54% decline from the previous week, the VIX ended the week at 12.7.

3 consecutive days in the red, Wednesday through Friday, left the VIX in the red for the week.

While Brexit hit a speedbump in the early part of the week, U.S corporate earnings and positive chatter on trade supported the U.S majors.

On Friday, the S&P struck an all-time high in the session before seeing its 2^nd highest historical close.

News hit the wires on Friday that the U.S and China had made progress towards phase 1 of a trade agreement. The positive updates suggested that the 15^th December tariffs may be taken off the table.

Whether progress beyond the first phase is possible remains to be seen, however. China will certainly be looking for existing tariffs to be removed and for the U.S attack on China tech companies to cease.

The Week Ahead

It’s a relatively busy week on the Eurozone economic calendar. The markets will need to wait until Wednesday for key stats.

On Wednesday, French 3^rd quarter GDP and September consumer spending figures are in focus alongside German unemployment numbers.

On Thursday, German retail sales and the Eurozone’s October inflation and September unemployment rate will also influence.

We would expect member state inflation numbers through the week and Spain’s 3^rd quarter GDP numbers to have a muted impact, however.

From elsewhere, it’s a data deluge. Private sector PMIs out of China, consumer confidence, GDP, and nonfarm payroll numbers from the U.S are amongst key stats that will also have an impact.

On the geopolitical front, chatter from Beijing and the U.S on trade requires monitoring as will Brexit news.

There are also corporate earnings to track throughout the week.

From the U.S, Alphabet Inc. (Mon), General Motors (Tues), Apple Inc. (Wed), Facebook Inc. (Wed), Chevron Corp. (Fri), and Exxon Mobil Corp (Fri) are amongst major companies to release earnings in the week ahead.

Out of Europe, Volkswagen (Wed) and Deutsche Bank (Thur) will be in focus.