European Equities – Weekly Review – 21/09/19It was a busy week for the markets, with geopolitical risk, monetary policy, and economic data providing direction over the week.
It was a mixed week for the European majors, with the CAC40 and EuroStoxx600 gaining 0.62% and 0.30% respectively, while the DAX30 ending the week flat.
There was plenty for the markets to consider through the week, including monetary policy, geopolitical risk, and economic data.
Following a material shift in trade rhetoric, the U.S and China were back at it on Friday, with news of China canceling farm visits doing the damage. In response, Trump called China a threat, raising tensions once more. Fortunately for the European majors, the markets had closed, leaving the U.S majors affected.
On the Brexit front, however, positive chatter from the EU provided much-needed support. EU Commission President Juncker talked of the possibility of a deal being in place by the end of October.
The positive sentiment towards Brexit will likely be overshadowed by the latest flare-up between the U.S and China, which sent U.S equities into the red on Friday.
It was ultimately the bad start to the week that pinned the majors back, however. An attack on Saudi Oil fields last weekend led the majors deep into the red at the start of the week. Concerns over possible military retaliation against Iran had the bulls running for cover. Trump once more shied away from a military response, despite Iran’s goading… The talk of sanctions over military strikes eased market jitters ahead of the FOMC on Wednesday.
Mid-week, the FED delivered on its 25 basis point rate cut, but it wasn’t enough to spur a major rally. FED Chair Powell talked up the U.S economy in the press conference and projections for rate cuts down the road failed to convince the majors that more cuts are likely before the end of the year.
The FED did, however, assure the markets that more action would be taken should the need arise.
On Friday, China’s PBoC also cut its 1-year loan prime rate from 4.25% to 4.20%, which was also positive for the markets. There was no major rally, however, with economists having forecasted a 10 basis point cut.
It was a relatively quiet week on the Eurozone economic calendar. Key stats were limited to Germany and the Eurozone’s ZEW Economic sentiment figures for September.
For Germany, while the current conditions indicator weakened further, the economic sentiment indicator improved, rising from -44.1 to -22.5 in September.
The Eurozone also saw sentiment improve, with the indicator rising from -43.6 to -22.4.
At the end of the week, there was a slight improvement in the Eurozone’s consumer confidence to avoid a late sell-off on Friday.
Inflation figures out of Italy, Germany and the Eurozone had a muted impact, with the ECB having already delivered the previous week.
The Market Movers
From the DAX, it was a mixed week for the auto sector. Continental and Daimler led the way down with losses of 5.96% and 2.58% respectively. BMW slipped by 0.22%, whilst Volkswagen bucked the trend, rising by 0.8%.
It was bearish for the banks. Deutsche Bank slid by 4.07%, while Commerzbank tumbled by 5.3%, partially reversing the previous week’s 10.53% gain.
From the CAC, it was a mixed week for the banks. BNP Paribas and Credit Agricole fell by 0.14% and by 1.83% respectively. Soc Gen bucked the trend, rising by 0.88%. French autos failed to perform following the previous week gains. Renault declined by 2.79%, while Peugeot slipped by 0.17%.
On the VIX Index
The VIX Index recovered from the previous week’s 8.67% loss, rising by 8.51% in the week to 15.3.
For the week, the gains came in spite of the VIX seeing 4 days in the red, with an 8.5% bounce back on Friday delivering.
Positive sentiment towards Brexit and the U.S – China trade war, together with monetary policy stimulus had weighed on the VIX until Friday.
On Friday, the VIX found strong support from China’s decision to cancel farm visits and Trump’s reaction. Once more, Friday proved to test risk sentiment.
The Week Ahead
It’s a relatively busy week on the Eurozone economic calendar. Key drivers include prelim September private sector PMI numbers due out of France, Germany, and the Eurozone on Monday.
From the PMIs, we would expect Germany’s manufacturing PMI and the Eurozone’s Composite to garner the most interest.
With the continued contribution from the services sector, however, the service sector PMIs will need to hold steady.
On Tuesday, Germany’s IFO Business Climate Index figures for September will also have an impact on the DAX30.
At the end of the week, Germany’s GfK Consumer Climate and French consumer spending figures will also provide direction. The reliance on consumer spending gives both sets of numbers greater influence at present.
From the ECB, the economic bulletin is due out but will likely be brushed aside by the majors on Thursday.
From U.S, private sector PMIs on Monday, consumer confidence figures on Tuesday, GDP numbers on Thursday and a data dump on Friday will need to be factored in…
Outside of numbers, chatter from Beijing and Washington on trade and Brexit news will also influence. There is also Iran to consider, with tensions in the Middle East capable of rising at any time. The United Nations Security Council Meeting will likely draw more attention than usual, with Iranian President Rouhani and U.S President Trump in attendance…