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Bob Mason

The Majors

It was another bullish week for the European majors in the week ending 29th May. The CAC40 rallied by 5.64% to lead the way, with the DAX30 and EuroStoxx600 gaining 4.63% and 3.00% respectively.

While economic data provided some direction in the week, it was COVID-19 news updates and the EU Budget and Recovery Fund that drove the majors.

On Wednesday, the EU delivered its Budget and a €750bn recovery fund that delivered more than a combined €2trn to struggling EU member states.

The sizeable number more than made up for the disappointment from late April. This was coupled with a continued easing of lockdown measures and relatively steady new coronavirus cases.

On the geopolitical risk front, rising tensions between the U.S and China did pin back the majors from more sizeable gains, however.

U.S President Trump announced late on Thursday that he will be delivering a response to China’s approval of the security bill for HK in the Friday news conference.

This led to a pullback on Friday that ended a run of 5 consecutive days in the green for the DAX30.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

Key stats included Germany’s IFO Business Climate Index figures for May and June’s GfK Consumer Climate Index numbers for June.

A pickup in both business and consumer confidence provided support to the European majors in the early part of the week.

The IFO Business Climate Index rose from 74.2 to 79.5, supported by a jump in the Business Expectations Index from 69.4 to 80.1

For June, the GfK Consumer Climate Index rose from -23.1 to -18.9.

At the end of the week, better than expected stats failed to support the majors, however, with geopolitical risks weighing.

From France, the 2nd estimate GDP was revised up from a contraction of 5.8% to a contraction of 5.3%. Out of Germany, retail sales fell by just 5.3%, which was far better than a forecasted 12.0% slump.

French consumer spending figures did disappoint for April, however, with spending tumbling by 20.2%.

Ultimately, however, the stats had a muted impact, with the markets brushing aside 1st quarter and April stats in the week.

Inflation figures for member states and the Eurozone in the week reflected the pickup deflationary pressures in the 2nd quarter. This also had a muted effect on the European majors in the week.

From the U.S

On Thursday, the weekly jobless claims figures on Thursday provided support in spite of another 2.123m increase in claims. While still at unprecedented levels, this was down from recent weeks.

At the end of the week, there were some interesting numbers to consider. In May, the Chicago PMI contracted at a quicker pace. A similar downward move in the favored ISM Manufacturing PMI next week would question the market’s view on where the bottom lies…

May’s finalized consumer sentiment figures were revised downwards from prelim, while up marginally from April. The survey raised a number of key issues including uncertainty over the outlook for consumption…

Away from the economic calendar, the ECB’s financial stability review, and dire assessment of the economy by ECB President Lagarde failed to weigh.

Fed Chair Powell also delivered a darker assessment of the economy and downside risks. These include the effects of the sizeable number of COVID-19 cases and the risks of a 2nd wave.

The Market Movers

From the DAX, it was a bullish week for the auto sector, in spite of a Friday pullback. Continental and Daimler jumped by 9.29% and 7.45% respectively to lead the way once more. BMW wasn’t far behind, with a 5.74% gain, while Volkswagen rose by just 0.29%.

It was another particularly bullish week for the banking sector. Commerzbank rose by 5.71%, with Deutsche Bank rallying by 13.30%.

Lufthansa was the story of the week, however, surging by 17.13% off the back of a 7.53% gain from the week prior. The easing of lockdown measures, which includes the opening of borders, and the government bailout delivered the upside.

From the CAC, it was also a particularly bullish week for the banks. BNP Paribas and Credit Agricole rallied by 12.88% and by 13.50% respectively. Soc Gen saw a more modest 6.01% gain.

It was an impressive week for the French auto sector. Peugeot rallied by 10.53%, with Renault surging by 17.17%.

Air France-KLM reversed last week’s 8.06% slide with a 12.67% rally, while Airbus rose by 4.48%.


On the VIX Index

It was 2nd consecutive week in the red for the VIX. In the week ending 29th May, the VIX fell by 3.78%. Following on from an 11.70% slide from the previous week, the VIX ended the week at 27.5.

Upbeat sentiment towards the reopening of the U.S economy pinned the VIX back, with 4 days in the red leading to the downside for the week.

The weekly loss was relatively minor, however, with market jitters over rising tensions between the U.S and China lingering.

On the economic data front, the markets took the weekly jobless claims as a positive, in spite of a 2.123m jump in claims. Consumer sentiment was also disappointing but neither were enough to sink the equity markets.

The S&P500 ended the week up by 3.01%, with the Dow and NASDAQ gaining by 3.75% and by 1.77% respectively.

The Week Ahead

It’s a busy week ahead on the Eurozone economic calendar.

Key stats include May’s private sector PMIs for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone.

The markets will want to see that upward trend from April to support demand for the European majors.

Mid-week, the focus will also be on Germany’s unemployment figures for May. Expect another jump in unemployment to test the majors, with the numbers due out alongside the Services PMIs.

In the 2nd half of the week, the ECB monetary policy decision press conference will be the key driver.

With Brussels having delivered, the ECB should have some breathing room to assess what impact the combination of monetary and fiscal policy support will have.

Other stats due out include the Eurozone’s unemployment rate and German factory orders for April. We will expect the markets to continue to brush aside April numbers.

From elsewhere, the U.S weekly jobless claims and ISM private sector PMIs will influence as will China’s PMIs.

Away from the economic calendar, chatter from Beijing and Washington and COVID-19 news will also need monitoring. On Friday, the U.S equity markets recovered losses from the day as Trump announced that the phase 1 trade agreement with China would remain in place. The U.S did roll out new sanctions and measures in response to China’s approval of the HK security law, however.

Expect China’s response to draw plenty of attention at the start of the week.

We also saw a pickup in the number of new coronavirus cases in the U.S late last week. If this trend continues a fear of a 2nd wave pandemic could return, which would be negative for the majors.

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