European Equities: A Week in Review – 29/01/21

The Majors

It was a bearish week for the European majors, following a mixed week across the boerses in the week prior.

The DAX30 and EuroStoxx600 slid by 3.18% and by 3.11% respectively, with the CAC40 ending the week down by 2.88%.

Disappointing economic data weighed on the European majors in the 1^st half of the week.

Adding to the market angst in the week was more bad news on the COVID-19 front. A shortfall in vaccine supplies, coupled with a continued rise in new cases weighed on sentiment towards the economic outlook.

Concerns over new strains of the virus added to the bearish mood in the week.

In the 2^nd half of the week, 4^th quarter GDP figures for France, Germany, and Spain failed to impress.

While the German and Spanish economies avoided contractions in the 4^th quarter, the French economy contracted once more.

For Germany and Spain, however, both sets of numbers affirmed market fears of a slowdown in the economic recovery.

The Stats

It was a relatively busy week on the economic calendar.

German business sentiment waned in January, with the ifo business climate index falling from 92.2 to 90.1. A marked decline in business expectations and businesses current assessment weighed on the headline index.

Consumer sentiment also fell, with Germany’s Gfk consumer climate indicator falling from -7.5 to -15.6 for February.

At the end of the week, 4^th quarter GDP numbers and December consumer spending and unemployment figures were in focus.

In the 4^th quarter the Spanish and German economies expanded by 0.4% and by 0.1% respectively. France suffered the most at the hands of the 2^nd wave of the COVID-19 pandemic in the 4^th quarter. The French economy contracted by 1.5%, quarter-on-quarter.

Consumer spending rebounded in France at the end of the year, with spending surging by 23% in December. In November, consumer spending at tumbled by 18.9%.

German unemployment figures were also positive, with unemployment falling by 41k in December. As a result, the unemployment rate held steady at 6.0% in December.

While the stats beat economic forecasts at the end of the week, the numbers were of little comfort for the markets.

The 2^nd wave of the COVID-19 pandemic continued to plague the Eurozone, with extended lockdown measures in place.

From the U.S

Economic data was on the heavier side.

Early in the week, key stats included consumer sentiment and core durable goods and durable goods orders.

Consumer sentiment improved in January, with core durable goods rising by 0.7% in December, following a 0.8% rise in December.

Durable goods orders disappointed, however, rising by just 0.2% following a 1.2% increase in November.

In the 2^nd half of the week, 4^th quarter GDP and jobless claims figures were in focus along with personal spending numbers.

The U.S economy grew by 4% in the 4^th quarter following the 3^rd quarter’s 33.4% rebound.

Labor market conditions improved but continued to point to a stalling in the labor market recovery. In the week ending 22^nd January, initial jobless claims came in at 847k, easing from 914k from the previous week.

At the end of the week, personal spending, inflation, and Chicago PMI figures also drew attention.

The stats failed to support the European majors at the end of the week, however.

On the monetary policy front, the FED stood pat on monetary policy. The expected hold left the market focus on the FOMC press conference. FED Chair Powell failed to convince the markets that the FED would hold off from tapering asset purchases near-term.

The European majors responded on Thursday and failed to shake the negative mood on Friday.

The Market Movers

From the DAX, it was a bearish week for the auto sector. Volkswagen slid by 4.96%, with BMW and Continental falling by 2.01% and by 2.73% respectively. Daimler saw a more modest loss of 1.46% in the week.

It was a particularly bearish week for the banking sector. Deutsche Bank and Commerzbank slid by 6.29% and by 5.44% respectively.

From the CAC, it was another bearish week for the banks. BNP Paribas slid by 7.66%, with Credit Agricole and Soc Gen falling by 5.44% and by 5.51% respectively.

It was a mixed week for the French auto sector. Renault rose by 2.38%, while Stellantis NV slid by 5.20%.

Air France-KLM followed last week’s 7.48% tumble with a 3.81% slide, with Airbus ending the week down by 6.34%

On the VIX Index

It was back into the green for the VIX. In the week ending 29^th January, the VIX jumped by 51.03%. Reversing a 9.98% fall from the previous week, the VIX ended the week at 33.09.

For the week, NASDAQ fell by 3.49%, with the Dow and S&P500 ending the week down by 3.27% and by 3.31% respectively.

The Week Ahead

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

At the start of the week, German retail sales and private sector PMIs for Italy, Spain, and the Eurozone will be in focus.

Expect Italy and the Eurozone’s PMIs to have the greatest influence.

Finalized PMI figures for France and Germany should have a muted impact, barring a material deviation from prelim figures.

In the second half of the week, German factory orders for December will also provide direction on Friday.

From the U.S, it’s also a busy week on the economic calendar.

The market’s preferred ISM private sector PMIs, ADP nonfarm employment figures, weekly jobless claims, and nonfarm payroll numbers will be in focus.

From elsewhere, private sector PMI numbers from China will set the tone at the start of the week.

The market’s preferred Caixin Manufacturing PMI will draw the greatest interest on Monday.

Away from the economic calendar, expect COVID-19 news and chatter from Capitol Hill to also continue to influence.