European Equities: A Week in Review – 22/02/20

Bob Mason

The Majors

It was a bearish week for the European majors in the week ending 21st February, with the DAX30 falling by 1.20% to lead the way down.

The CAC40 and EuroStoxx600 saw more modest losses of 0.65% and 0.61% respectively.

Negative sentiment towards the anticipated impact of the coronavirus on corporate earnings and global trade pressured in the week.

At the start of the week, Apple issued a warning over demand for the 1st quarter that saw the majors hit reverse on Tuesday.

Mid-week, the majors managed to claw back their losses from Tuesday to move back into positive territory for the week.

Support had come from the Chinese government and the PBoC’s moves to mute the impact of the coronavirus on 1st quarter growth.

This was coupled with a downward trend on the number of people catching the virus, with the death toll also in decline.

A reversal came on Thursday, however, with earnings weighing. Air-France KLM delivered to a stark warning on Thursday, which hit risk appetite on the day.

At the end of the week, the majors were unable to shift away from the negative sentiment towards the coronavirus as new cases jumped globally.

Things could have been far worse had economic data from the Eurozone not been skewed to the positive in the week. The softer EUR had also provided some support earlier in the week before Friday’s rebound.

The Stats

It was a busy week on the Eurozone economic calendar.

On Tuesday, the ZEW Economic Sentiment figures for Germany and the Eurozone were in focus, which weighed on the majors.

Germany’s ZEW Economies Sentiment Index slid from 26.7 to 8.7 in February, with the Eurozone’s falling from 25.6 to 10.4. Concerns over the impact of the coronavirus on global trade contributed to the slide.

The focus then shifted to consumer confidence figures out of Germany on Thursday and prelim February private sector PMIs on Friday.

Germany’s GfK Consumer Climate Index fell from 9.9 to 9.8 for March, coming in ahead of a forecast of 9.6. There were no major concerns over the coronavirus, with sentiment towards the economic outlook on the rise.

The main event of the week, however, was the release of prelim private sector PMI numbers out of France, Germany, and the Eurozone.

According to the prelim numbers:

The French Manufacturing PMI fell from 51.1 to 49.7, while the services PMI jumped from 51.0 to 52.6.

It was also mixed out of Germany, with the manufacturing PMI rising from 45.3 to 47.8, while the services PMI fell from 54.2 to 53.3.

For the Eurozone, the Manufacturing PMI rose from 47.9 to 49.1, with the Services PMI rising from 52.5 to 52.8.

The Eurozone’s Composite PMI increased from 51.3 to 51.6.

According to the Eurozone PMI survey,

  • The Eurozone’s Composite Output Index hit a 6-month high, with the Manufacturing Output Index hitting an 8-month high.
  • Supported by better numbers out of France and Germany, the Eurozone Manufacturing PMI hit a 12-month high in February.
  • In spite of the rise in the Manufacturing PMI, new orders fell for a 17th consecutive month. The decline was the smallest in 15-months, however. Domestic demand offset much of a more marked decline in demand from overseas.
  • Overall, however, new orders increased at a rate equal to January’s 7-month high.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen led the way down, sliding by 2.63%. BMW and Daimler saw more modest losses of 1.88% and 1.55% respectively. Continental bucked the trend in the week, rising by 0.47%.

It was a particularly bearish week for the banking sector, however, with Deutsche Bank tumbling by 7.28%. Commerzbank fell by a more modest 1.36%.

From the CAC, it was also a bearish week for the banks. BNP Paribas fell by 0.86%, with Credit Agricole and Soc Gen sliding by 2.59% and by 2.08% respectively.

Things were not much better for the French auto sector. Renault tumbled by 8.17%, with Peugeot ending the week down by 1.19%.

The shift in risk appetite also weighed on airline stocks. Germany’s Lufthansa fell by 3.28%, with Air France-KLM down by 5.02%.

On the VIX Index

The VIX rallied by 24.85% in the week ending 21st February to deliver a 1st weekly gain in 3-weeks. Reversing an 11.57% fall from the previous week, the VIX fell by 11.57% to end the week at 17.1.

Economic data out of the U.S at the end of the week disappointed, with the all-important U.S service sector contracting for the 1st time since October 2013. According to prelim February figures, the Services PMI fell from 53.4 to a 76-month low 49.4.

Things were not much better for the manufacturing sector, with the PMI falling from 51.9 to 6-month low 50.8. As a result, the U.S Composite Output Index slumped to a 76-month low 49.6.

Dire numbers at the end of the week coupled with rising coronavirus cases across the world drove risk aversion on Friday. Two consecutive days in the green at the end of the week delivered the lion’s share of the gains.

The Week Ahead

It’s another busy week ahead on the Eurozone economic calendar. Through the 1st half of the week, Germany’s business sentiment and 2nd estimate GDP numbers are in focus.

Through the 2nd half of the week, the markets will need to wait until Friday for employment numbers out of Germany and consumer spending and 2nd quarter GDP numbers out of France.

We expect prelim February inflation figures out of Spain, France, Italy, and Germany to have a muted impact on the majors.

From elsewhere, consumer confidence numbers out of the U.S will influence on Tuesday. Durable goods and 2nd estimate GDP numbers out of the U.S on Thursday will also provide direction.

Outside of the numbers, expect updates from China and beyond on the spread of the coronavirus to remain the key driver.

This article was originally posted on FX Empire