European Equities: A Week in Review – 28/01/22

The Majors

It was another particularly bearish week for the European majors in the week ending 28^th January.

The CAC40 fell by 1.45%, with the DAX and the EuroStoxx600 ending the week down by 1.83% and by 1.87% respectively.

While disappointing economic data from Germany and the Eurozone didn’t help, FED forward guidance weighed on the majors in the week.

Upbeat economic data from the U.S added to the market angst, with a sharp pickup in U.S economic activity in Q4 supporting the FED’s hawkish outlook on rates.

The Stats

Prelim private sector PMIs, German business and consumer sentiment, and member state GDP numbers drew attention.

It was a mixed set of numbers, particularly for the German economy.

German private sector activity bounced back in January, with the services sector returning to growth. Business and consumer sentiment also improved, albeit modestly.

According to prelim figures, however, the Eurozone’s Composite PMI fell from 53.1 to an 11-month low 52.4 versus a forecasted 52.6 in January. The decline came in spite of Germany’s manufacturing PMI rising from 57.4 to 60.5.

Germany’s GDP numbers for the 4^th quarter disappointed. Quarter-on-quarter, the German economy contracted by 0.7%. The French and Spanish economies fared better in the final quarter.

While the stats drew attention, it was ultimately the hawkish FED that sank the European majors.

From the U.S

Early in the week, economic data took a back seat, in spite of weak private sector PMI and consumer sentiment figures.

On Wednesday, the FOMC rate statement and press conference was the main event. A more hawkish than anticipated FED Chair, who failed to downplay monthly rate hikes, spooked the markets.

In the 2^nd half of the week, economic data impressed, supporting the FED Chair’s view that the U.S economy could withstand a rising interest rate environment.

Initial jobless claims fell from 290k to 260k in the week ending 21^st January. GDP numbers, were also upbeat, with the economy expanding by 6.9% in the 4^th quarter. In the 3^rd quarter, the economy had expanded by 2.3%.

At the end of the week, inflation and personal spending figures were also key after Wednesday’s forward guidance.

In January, the Core PCE Price Index rose by 5.8% year-on-year, which was up from 5.7% in the month prior. Personal spending disappointed, however, falling by 0.6%. In November, personal spending had risen by 0.4%.

The Market Movers

From the DAX, it was another bearish week for the auto sector. Continental tumbled by 6.44% to lead the way down. BMW and Daimler slid by 3.31% and by 2.86% respectively, with Volkswagen falling by 2.14%

It was a bullish week for the banking sector, however. Deutsche Bank rallied by 3.78%, with Commerzbank rising by 2.57%.

From the CAC, it was a mixed week for the banks. BNP Paribas rose by 0.54%, while Soc Gen and Credit Agricole ended the week with losses of 0.33% and 0.18% respectively.

The French auto sector also had a mixed week. Stellantis NV tumbled by 4.82%, while Renault rallied 3.77%.

Air France-KLM and Airbus ended the week down by 0.65% and by 1.78% respectively.

On the VIX Index

It was back into the red for the VIX in the week ending 28^th January, marking a 1^st fall in 4-weeks.

Following a 50.34% surge from the previous week, the VIX fell by 4.12% to end the week at 27.66.

2-days in the red from 5 sessions, which included a 9.28% slide on Friday delivered the downside.

For the week, the NASDAQ rose by 0.01%, with the Dow and the S&P500 ending the week up by 1.34% and by 0.77% respectively.

The Week Ahead

It’s busy week ahead on the Eurozone economic calendar. 4^th quarter GDP numbers for the Eurozone will draw interest early in the week. On the inflation front, prelim January inflation figures for member states and the Eurozone will also be key.

German retail sales and unemployment figures will also influence on Tuesday.

With finalized private sector PMI numbers for France, Germany, and the Eurozone and PMI numbers for Italy and Spain also in focus, there will be plenty for the markets to consider.

On the monetary policy front, however, the ECB policy decision and press conference will likely be the main event of the week. The big question remains on whether the ECB will continue to stand by its view on inflation.

From the U.S, ISM survey-based private sector PMI and ADP nonfarm payrolls will draw plenty of interest. The key stat of the week, however, will be nonfarm payroll figures due out on Friday. Solid numbers should be a green light for the FED and a March rate hike.

From elsewhere, private sector PMI numbers from China will set the tone, with the numbers due out on Sunday.