European Equities: A Week in Review – 31/01/20

The Majors

It was a particularly bearish final week of the month for the European majors. In the week ending 31^st January, the DAX30 slumped by 4.38% to lead the way, with the CAC40 and EuroStoxx600 sliding by 3.62% and 3.05% respectively.

The sell-off in the week left the European majors in the red for January, with the CAC40 falling by 2.87%. Things were not much better for the DAX30 and EuroStoxx600, which fell by 2.02% and by 1.23% in January.

Market panic over the spread of the coronavirus and likely impact on global growth weighed heavily on risk appetite in the week.

As the death toll continued to rise in China, news of the person to person spread of the virus in other countries was particularly alarming.

Total confirmed cases in China accelerated to just shy of 10,000, with the number of reported deaths reaching 213.

The rapid spread looks set to continue, which is more than likely to materially impact 1^st quarter growth in China and beyond.

Adding to the risk aversion across the European majors was a string of disappointing stats. Eurozone GDP numbers for the 4^th quarter rounded off a dire week for the majors.

The Stats

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

In a relatively quiet 1^st half of the week, German business confidence and consumer confidence figures delivered mixed results. Risk aversion at the start of the week, coupled with fall in business confidence weighed heavily, however.

A pickup in consumer confidence in Germany had a muted impact, with the spread and impact of the coronavirus likely to reverse any upbeat sentiment.

A busier 2^nd half of the week saw employment numbers out of Germany and the Eurozone impress ahead of some dire stats on Friday.

Wrapping up the month of January, GDP numbers form the Eurozone supported ECB President Lagarde’s less than rosy outlook.

France’s economy contracted in the final quarter of the year, preparing the majors for a bad day on the data front on Friday.

The Eurozone economy grew by just 0.1% in the 4^th quarter and by 1%, year-on-year, down from 1.2% in the 3^rd quarter.

Retail sales figures were also particularly disappointing, with German retail sales sliding by 3.3%. In France, consumer spending fell by 0.3%.

Even inflationary pressures softened, according to prelim January figures. The Eurozone’s core annual rate of inflation eased from 1.3% to 1.1%…

The Market Movers

From the DAX, it was yet another bearish week for the auto sector. BMW and Volkswagen led the way down, sliding by 6.60% and by 8.64% respectively. Continental and Daimler saw more modest losses of 0.85% and 4.73% respectively.

It was a bullish week for the banking sector, however, with Deutsche Bank rallying by 6.19% and Commerzbank rising by 1.17%.

From the CAC, it was a bearish week for the banks. BNP Paribas and Soc Gen slid by 3.75% and by 3.18% respectively, with Credit Agricole falling by 2.70%.

The French auto sector also struggled in the week, with Peugeot and Renault sliding by 3.43% and by 2.84% respectively.

With the coronavirus influencing the majors in the week, airline stocks were at the mercy of the news wires.

Germany’s Lufthansa fell by 4.38% following a 5.64% slide from the previous week, with Air France-KLM sliding by 6.15%. In the previous week, Air France-KLM had tumbled by 9.7%.

On the VIX Index

The VIX Index saw green in the week ending 31^st January. Following 20.33% gain from the previous week, the VIX rose by 29.4% to end the week at 18.8.

A particularly bearish day across the U.S majors led to a 21.63% jump in the VIX on Friday, contributing to the weekly gain.

For the month of January, the VIX rallied by 36.7%.

Disappointing economic data from the U.S and fears over the coronavirus weighed on the U.S equity markets.

For the S&P500, a 1.77% slide on Friday contributed to the week’s 2.12% slide that left the index down by 0.16% for January.

The Week Ahead

It’s a busy week on the Eurozone economic calendar. Through the 1^st half of the week, finalized private sector PMI numbers out of France, Germany and the Eurozone are in focus.

Private sector PMIs are also due out of Italy and Spain. Any downward revision to the Eurozone’s composite would add more pressure on the majors.

In the 2^nd half of the week, the focus will shift to stats out of Germany.

December factory orders, industrial production, and trade data are due out on Thursday and Friday.

Economic data from the U.S and China will also influence in the week ahead.

From the U.S, the market’s preferred ISM private sector PMIs are due out ahead of nonfarm payroll and wage growth figures on Friday.

Out of China, the Caixin private sector PMIs will also influence.

We can expect the European majors to be particularly sensitive to the numbers. The coronavirus may well have a greater impact on the week, however.

When considering the rapid spread in such a short period of time, it’s worth noting that SARS spread in just over a 6-month period…

With closed to 10,000 cases, the coronavirus was first identified just a month ago, in late December of last year.

If SARS is anything to go by, then there could be more pain to come…