European Equities: A Week in Review – 26/03/21

The Majors

It was another mixed week for the European majors in the week ending 26^th March.

The DAX30 and EuroStoxx600 ended the week gains of 0.88% and 0.85% respectively, while the CAC40 fell by 0.15%.

Impressive economic data provided the European majors with support in the week.

Germany and the Eurozone’s manufacturing PMIs hit record highs in March, according to prelim figures.

Optimism towards the U.S economy and progress on Biden’s vaccination pledge were also positives for the markets.

A fresh spike in new COVID-19 cases pegged the European majors back, however, and left the CAC40 in the red for the week.

While German Chancellor Angela Merkel took an about turn on an Easter lockdown, the French government reintroduced new containment measures in the week.

Other EU member states were also forced to introduce containment measures, raising uncertainty over the economic outlook.

From the ECB, the ECB’s Economic Bulletin also raised concerns over the possible negative impact of new containment measures on the economic recovery.

The Stats

It was a busy week on the economic data front.

Private sector PMIs and German consumer and business sentiment figures were on focus.

It was an impressive set of numbers from Eurozone member states.

The Eurozone’s Services PMI increased from 45.7 to a 7-month high 48.8 in March, according to prelim figures versus a forecasted 46.0.

In March, the Eurozone’s Manufacturing PMI rose from 57.9 to a record high 62.4 versus a forecasted 57.7.

The pickup in the Eurozone PMI numbers came off the back of a marked pickup in private sector PMI numbers from France and Germany.

Germany’s manufacturing PMI jumped from 60.7 to a record high 66.6, with the services sector returning to growth.

German Consumer and Business Confidence

For April, Germany’s GfK Consumer Climate Index rose from -12.7 to -6.2.

A marked increase in income expectations, which hit a 12-month high, supported the jump in the headline figure.

On the business front, Germany’s IFO Business Climate Index increased from a revised 92.7 to 96.6.

Supporting the uptick in the headline figures was a jump in the business expectations sub-index from a revised 94.2 to 100.4.

The current assessment sub-index was also on the rise, increasing from 90.6 to 90.3.

ECB Economic Bulletin

Salient points from the ECB Economic Bulletin included:

• While the overall economic situation is expected to improve over 2021, uncertainties near-term remain.
• Persistently high infection rates, the spread of the virus mutations, and the associated and tightening of containment measures are weighing on euro area economic activity in the short term.
• Looking ahead, the ongoing vaccination campaigns, together with the envisaged gradual relaxation of containment measures, underpin the expectation of a firm rebound in economic activity this year.
• Other areas of focus include inflation and trade, both of which were favorable for riskier assets.
• While the ECB saw a pickup in near-term inflationary pressures, the longer-term outlook was for a softening.
• Trade terms were viewed as positive, supported by a marked pickup in manufacturing sector activity in Q42020.
• The Euro area labor market continues to benefit from significant policy support.
• Consumer spending lost momentum around the turn of the year. While household savings have been on the rise, households’ expectations for the next 12-months vis-à-vis the general economic situation, their personal financial situation, and their plans to make major purchases have not improved significantly since May 2020.
• The recent intensification of the COVID-19 pandemic has weakened the short-term outlook for the euro economy. It has not derailed its recovery, however.

From the U.S

Prelim private sector PMIs for March were market positive, with the service PMI rising from 59.8 to 60.0. The Manufacturing PMI increased from 58.6 to 59.0.

Core durable goods orders disappointed, however, falling by 0.9% in February.

On Thursday, jobless claims figures provided riskier assets with support. In the week ending 19^th February, initial jobless claims fell from 781k to 684k. This was the first time claims had fallen to sub-700k levels since the start of the pandemic.

At the end of the week, the stats were skewed to the negative, however.

Inflationary pressures softened, with the Core PCE Price Index rising by 1.4% year-on-year in February. In January, the index had risen by 1.5%.

Personal spending slid by 1% in February, partially reversing a 3.4% jump from January.

Other stats included trade data and finalized consumer sentiment figures that had a muted impact on the Dollar.

On the monetary policy front, FED Chair Powell testimony also delivered Dollar support in the week.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen and BMW rose by 1.51% and by 1.61% respectively. Continental slid by 7.01%, however, with Daimler ending the week down by 0.24%.

It was a bearish week for the banking sector. Deutsche Bank and Commerzbank fell by 1.51% and by 1.69% respectively.

From the CAC, it was a bullish week for the banks. BNP Paribas rose by 1.02%, with Credit Agricole and Soc Gen gaining 0.99% and 0.32% respectively.

It was another bearish week for the French auto sector, however. Renault and Stellantis NV ended the week with losses of 0.96% and 6.21% respectively.

Air France-KLM fell by 2.27%, while Airbus gained a modest 0.35%.

On the VIX Index

It was a back into the red for the VIX in the week ending 26^th March. Reversing a 1.26% gain from the previous week, the VIX fell by 9.98% to end the week at 18.86.

Three days in the red that included a 9.88% fall on Monday contributed to the downside in the week.

For the week, the NASDAQ fell by 0.58%, while the Dow and the S&P500 rose by 1.36% and by 1.57% respectively.

The Week Ahead

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

French and German consumer spending and German unemployment figures are due out in the week ahead.

Expect Germany’s stats to have a greater impact on the EUR. With France having reintroduced lockdown measures, the markets will likely brush aside any positive numbers from France.

Late in the week, manufacturing PMI numbers for Italy and Spain will also draw attention along with finalized PMI for France, Germany, and the Eurozone.

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

From the U.S, consumer confidence, ADP nonfarm employment change, and ISM Manufacturing PMI numbers are also in focus.

Nonfarm payroll and unemployment numbers are also due out, though the European markets will need to wait until Monday to respond.

From elsewhere, private sector PMI numbers from China will also provide direction to the broader markets.

On the geopolitical risk front, U.S – China tensions and EU – Britain tensions will  need monitoring. For the Eurozone, COVID-19 news will also be key in the week. Further lockdown measures would likely test support levels.