European Equities: A Week in Review – 27/05/22

The Majors

It was a bullish week for the European majors in the week ending May 27, 2022.

The EuroStoxx600 rose by 2.98%, with the CAC40 and the DAX seeing gains of 3.67% and 3.44%, respectively.

Economic data and market sentiment towards Fed monetary policy delivered support in the week.

Market angst over the threat of a recession eased, with economic data from the US showing robust consumer spending in April. Adding support was softer inflation figures at the end of the week.

On Wednesday, the FOMC meeting minutes were also market-friendly, with the minutes suggesting the Fed may take its foot off the gas in the coming months.

From the ECB, ECB President Christine Lagarde talked of an end to negative rates but not much more, which was also market positive.

The Stats

It was a busy first half of the week, with German business and private sector PMIs in focus.

The stats were market positive, with German business sentiment and German manufacturing sector activity delivering support.

Germany’s ifo Business Climate Index increased from 91.9 to 93.0 in May. The manufacturing sector PMI rose from 54.6 to 54.7, according to prelim figures.

For France and the Eurozone, however, the private sector numbers were market negative.

The Eurozone manufacturing PMI fell from 55.5 to 54.4, with the composite declining from 55.8 to 54.9.

Mid-week, German GDP and consumer climate figures failed to impress, with consumer sentiment still weak in June. The second estimate GDP numbers were in line with the first estimate, with the German economy expanding by 0.2% in the first quarter.

From the US

In the first half of the week, private sector PMIs and core durable goods orders were the key stats.

The numbers were skewed to the negative, supporting the negative sentiment towards the economy.

In May, the services PMI fell from 55.6 to 53.5, with core durable goods orders rising by just 0.3%. Core durable goods orders had risen by 1.2% in April.

On Thursday, the stats were also Dollar negative, with the US economy contracting by more than expected.

Inflation and personal spending numbers wrapped things up on Friday.

In April, the core PCE price index increased by 4.9% year-on-year, which was softer than a 5.2% rise in March.

Personal spending increased by a further 0.9% in April, following a 1.4% jump in March.

While the stats influenced, the FOMC meeting minutes on Wednesday also drew plenty of interest. The minutes were hawkish, showing members’ willingness to deliver multiple 50 basis point rate hikes. Aligned with previous Fed Chair Powell’s commentary, members were also willing to move beyond neutral to curb inflation.

The minutes did talk of a shift in policy in the coming months, however, which eased investor fears of a move beyond neutral.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Continental ended the week up by 5.55%, with Volkswagen rising by 4.50%. BMW and Daimler saw gains of 4.29% and 4.30%, respectively.

It was a bullish week for the banking sector. Deutsche Bank and Commerzbank rallied by 11.00% and by 11.60%, respectively.

From the CAC, it was a mixed week for the French banks. Soc Gen and Credit Agricole rose by 1.55% and by 8.28%, respectively, while BNP Paribas slipped by 0.30%.

The French auto sector had a bullish week. Stellantis NV rose by 1.89%, with Renault up 4.18%.

Air France-KLM slumped by 58.72% on rights issue, while Airbus ended the week up 4.62%.

On the VIX Index

In the week ending May-27, the VIX fell for a third week in four, with four days in the red from five sending the VIX into the red.

Reversing a 1.94% gain from the previous week, the VIX slid by 12.61% to end the week at 25.72.

4-days in the red from 5 sessions, which included a 6.47% decline on Friday did the damage.

For the week, the NASDAQ rallied by 6.84%, with the Dow and the S&P500 seeing gains of 6.24% and 6.58%, respectively.

The Week Ahead

It is a busy week on the Eurozone economic calendar.

Early in the week, French GDP and German unemployment figures will draw interest along with member state and Eurozone inflation.

Mid-week finalized Eurozone manufacturing figures will also draw interest.

After a quiet Thursday, German trade data and finalized service PMI and composite PMI figures will influence.

From the US, consumer confidence will be in focus ahead of private sector PMIs on Wednesday and Friday.

The key stats of the week, however, will be nonfarm payrolls and the unemployment rate, which could define the Fed’s next move on interest rates and give further clues on the state of the US economy.