European Equities: A Week in Review – 28/03/20
It was a bullish week for the European majors, with 3-days in the green out of 5 ending a run of 5 consecutive weeks in the red.
Market response to government fiscal policy muted the effects of particularly dire economic data throughout the week.
The upside in the week was limited, however, with the spread of the coronavirus across the EU and the U.S continuing to alarm the markets.
In the week, we saw both Italy and the U.S see the number of coronavirus cases surpass China. Perhaps more alarmingly was the pace of the spread across the U.S that suggests worse to come. For some, it may even be the continued spread across Italy in spite of the prolonged lockdown.
While governments have stepped up to deliver alongside central banks, the dust has yet to settle, however. It will be some time before there is a way of assessing the damage.
In the week, the U.S went into shutdown mode as EU member states introduced more stringent containment measures. A continued spread of the virus into April could mean that March numbers are just a taste of what is to come before conditions improve.
For the week, the DAX30 rose by 7.88%, with the CAC40 and EuroStoxx600 gaining 7.48% and 6.09% respectively. A pullback on Friday limited the gains for the week.
It was a busy week on the Eurozone economic calendar.
Key stats in the week included March prelim private sector PMI numbers out of France, Germany, and Spain. German business and consumer confidence figures for March garnered attention mid-week.
According to the Eurozone’s March prelim Markit Survey,
- The Composite PMI slid from 51.6 to a record low 31.4.
- For the Eurozone, the Manufacturing PMI slid from 49.2 to a 99-month low 44.8. The Services PMI tumbled from 52.6 to a record low 28.4.
- At the service sector level, consumer-facing industries, including travel tourism and restaurants, were reportedly worst hit.
- In the manufacturing sector, the slide in factory output was the largest since Apr-09, with goods orders also falling at the sharpest pace since 2009.
- At composite level, employment fell at the steepest pace since Jul-09, the services sector worst hit.
At member state, Germany and France saw service sector PMIs fell to all-time lows. Germany’s manufacturing sector activity fell to just a 2-month low, which was of little consolation.
We will expect manufacturing sector activity to continue to see a downward trend, however, as the EU went into shutdown in late March.
Unsurprisingly, both business and consumer confidence also took a hit in Germany. A more material decline is also anticipated in April…
Outside of the numbers, the ECB released its Economic Bulletin that delivered some grim reading. Most notably were downward revisions to both real GDP growth and inflation. ECB staff revised down real GDP growth for 2020 by 0.3 percentage points to 0.8% for the Eurozone.
From the U.S, the stats were no better with March prelim Composite Output Index sliding to a new series low.
Labor market figures also were cause for alarm, with the jobless claims surging by an unprecedented 3.283m in the week prior.
While the numbers were particularly dire, the Senate managed to pass through a $2tn Stimulus Bill that provided support.
The Market Movers
From the DAX, it was a particularly bullish week for the auto sector, in spite of a Friday sell-off. Daimler rallied by 21.61% to lead the way, with Continental rising by 15.73%. BMW and Volkswagen saw more modest gains of 12.69% and 14.95% respectively.
It was also a bullish week for the banking sector, with Deutsche Bank and Commerzbank gaining 9.23% and 9.67% respectively.
Lufthansa rose by just 0.55% in the week, with the upside coming in spite of the dire state of affairs in the airline industry.
From the CAC, banks were also on the move. BNP Paribas and Soc Gen rallied by 8.89% and 10.84 respectively, while Credit Agricole rose by 2.64%.
The French auto sector joined the rally, with Renault and Peugeot ending the week with gains of 11.02% and 6.63% respectively.
Air France-KLM managed to reverse a 3.93% loss from the previous week, with a 6.82% gain.
On the VIX Index
A run of 5 consecutive weeks in the green came to an end, with the VIX falling by 0.76% in the week ending 27th March. Following a 14.2% gain from the previous week, the VIX ended the week at 65.5.
While the weekly loss was relatively minor, it could have been far worse, with the VIX having visited sub-40 levels before bouncing back.
A choppy week saw the VIX reflect mixed sentiment towards the moves across the U.S equity markets. Mid-week, the VIX saw gains alongside the U.S equity markets.
This could be attributed to market sentiment towards the U.S Stimulus Bill, the widening spread of the virus and some quite dire economic data…
While a $2tn Stimulus Bill was certainly a positive, economic data was alarming. For the U.S, the spread of the coronavirus has only just gathered pace. This may well mean that it will likely get far worse before things improve…
The Week Ahead
It’s another busy week ahead on the Eurozone economic calendar. Key stats include March private sector PMI numbers out of Italy and Spain and March unemployment numbers out of Germany. Finalized private sector PMIs out of France, Germany, and the Eurozone will also need monitoring.
Once more, we’re not expecting great numbers but perhaps Italy’s private sector PMI numbers could give the markets an idea of how bad things could get should containment measures fail to stop the spread elsewhere.
February retail sales figures out of France and Germany will likely have a muted impact on Tuesday and Wednesday.
On the inflation front, following the ECB’s Economic Bulletin, March prelim inflation numbers out of Spain and Germany will garner some interest at the start of the week…
From elsewhere, March private sector PMIs out of China will also influence.
Following the alarming numbers for February, the markets will want to see improvement in March. Further deterioration and expect the markets to question whether current monetary and fiscal policy will be enough…