European Equities: A Week in Review – 29/08/20
It was a bullish week for the European majors in the week ending 28th August. The CAC40 and DAX40 rose by 2.18% and by 2.10% to lead the way, with the EuroStoxx600 seeing a more modest 1.02% gain.
A bearish 2nd half of the week limited the upside for the European majors, however.
Economic data from the U.S on Thursday that included 2nd quarter GDP and weekly jobless claims figures weighed.
On the positive, however, was news of Germany ramping up fiscal stimulus to combat the effects of the COVID-19 pandemic. France announced that it would also roll out fiscal stimulus in September, which was also market positive.
FED Chair Powell weighed on the majors in the 2nd half of the week, however. Talking from Jackson Hole, Powell laid out the FED’s new monetary policy framework.
In a nutshell, the FED has now adopted an average inflation strategy. This means that the FED would tolerate higher inflation for longer to balance out periods of low inflation. Additionally, the FED announced that it would not look to create spare capacity in the economy to counter inflationary pressures.
While the news was largely expected, bank shares suffered on Thursday as a result. A low for longer interest rate environment is also a reminder of just how concerned the FED is over the economic outlook.
It was another busy week on the Eurozone economic calendar.
In the 1st half of the week, it was Germany in focus.
The stats were skewed to the positive. 2nd quarter GDP numbers were revised upwards, with the IFO Business Climate Index on the rise.
Through the 2nd half of the week, economic indicators from France and Germany drew attention.
In France, consumer confidence held steady in August, while consumer confidence waned in Germany.
French consumer spending also disappointed according to August numbers, with 2nd quarter GDP numbers unchanged.
All-in-all, the mixed set of numbers coupled with fresh spikes in new COVID-19 cases in France and Germany were negatives.
From the U.S
It was another mixed week on the economic data front.
Consumer confidence took an unexpected dive in August, with the weekly initial jobless claims continuing to hover at the 1m mark.
On the positive, however, was another jump in durable goods and core durable goods orders in July.
FED Chair Powell’s speech from Jackson Hole, however, added pressure on the Greenback, leading to a jump in the EUR.
With European manufacturers struggling, a prolonged period of EUR strength will be a test.
At the end of the week, stats included inflation, personal spending, and finalized consumer sentiment figures.
A pickup in inflationary pressures, a larger than expected rise in personal spending, and upward revisions to consumer sentiment figures failed to provide support to the European majors, however.
The Market Movers
From the DAX, it was a particularly bullish week for the auto sector after the previous week’s tumble. BMW, Continental, and Daimler rallied by 5.12%, by 4.10%, and by 4.28%. Volkswagen saw a more modest 2.80% gain on the week.
It was also a bullish week for the banking sector. Commerzbank and Deutsche Bank jumped by 8.07% and by 6.82% respectively.
From the CAC, it was a bullish week for the banks. Credit Agricole and Soc Gen rallied by 6.84% and by 6.55%, with BNP Paribas gaining 6.93%.
The French auto sector also found some much-needed support. Peugeot and Renault rose by 1.74% and by 4.86% respectively.
Air France-KLM reversed last week’s 2.38% fall with a 5.72% gain, with Airbus rising by 3.42%.
On the VIX Index
It was a 2nd consecutive week in the green for the VIX in the week ending 28th August. Following on from a 2.22% gain from the previous week, the VIX rose by 1.86% to end the week at 22.54.
The weekly gain was only the 3rd in 11-weeks.
The S&P500 and the NASDAQ ended the week up by 3.26% and by 3.36% respectively, with the Dow gaining 2.59%.
The upside for the VIX came in spite of fresh record highs for the S&P500 and the NASDAQ.
Positive updates from the U.S and China trade talks and progress towards a COVID-19 vaccine added support.
The Week Ahead
It’s another busy week ahead on the Eurozone economic calendar.
In the 1st half of the week, August manufacturing PMIs are due out of Italy and Spain, along with the Eurozone’s unemployment rate.
Expect any revisions to Germany and the Eurozone’s PMIs to have the greatest influence.
Mid-week, German retail sales figures will be in focus ahead of service sector PMIs on Thursday.
With the ECB continuing to rely on a consumer-led economic recovery expect the numbers to influence.
At the end of the week, German factory order numbers for July round things off…
From the U.S
It is another busy week ahead.
Key stats will include the market’s preferred ISM private sector PMIs, factory orders, and the nonfarm payroll numbers.
Expect geopolitics and updates on COVID-19 to also influence in the week.