Depositphotos_63012897_s-2019

European Equities: Market Reaction to the FOMC Projections and Economic Data to Influence

Economic Calendar:

Thursday, 17th March

Eurozone Wages in euro zone (YoY) (Q4)

Eurozone Trade Balance (Jan)

Friday, 18th March

German PPI (MoM) (Feb)

The Majors

It was a mixed day for the European majors on Wednesday. The DAX30 rose by 0.27%, while the CAC40 and the EuroStoxx600 fell by 0.01% and by 0.45% respectively.

Economic data took a back seat on Wednesday, with the markets awaiting the FOMC monetary policy decision and projections.

Uncertainty over the FED’s outlook on inflation, economic growth, and interest rates pegged the majors back on the day.

The Stats

It was a relatively quiet day on the economic calendar on Wednesday. Finalized March inflation figures for the Eurozone were in focus on Wednesday.

In February, the annual core rate of inflation softened from 1.4% to 1.1%, which was in line with prelim figures.

The annual rate of inflation held steady at 0.9%, which was in line with prelim figures. This was down from an annual rate of inflation of 1.2% in February 2020, however.

Month-on-month, consumer prices increased by 0.2% in February, which was in line with forecasts. In January, consumer prices had also risen by 0.2%.

According to Eurostat,

  • Greece (-1.9%), Slovenia (-1.1%), and Cyprus (-0.9%) registered the lowest annual rates of inflation.
  • In February, the highest contribution came from services (+55 percentage points), followed by food, alcohol, & tobacco (+0.29 pp)

From the U.S

Housing sector figures for February were the only stats to consider through the European session.

With the markets having to hold out for the FOMC projections, the stats had a muted impact on the European majors.

After the European close, the FED’s monetary policy decision and FOMC projections were in focus.

The FED is expecting unprecedented growth and a a spike in inflation this year.

From the FOMC projections, the FED upwardly revised its growth projection for 2021 from 4.2% to 6.5%.

Core PCE inflation is now projected to spike at 2.2%, up from December’s 1.8% projection, before easing back to 2.0% in 2022.

In spite of the strong growth forecasts and anticipated jump in inflation, the FED projects interest rates to hold steady at 0.1% through to 2023, based on the median. The central tendency figures did reflect some FOMC members with a more hawkish stance, however.

While the central tendency was 0.1% for 2021, this shifted to between 0.1% and 0.4% for 2022 and to between 0.1% and 0.9% for 2023.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Wednesday. Volkswagen jumped by a further 9.39%, with BMW rallying by 6.87%. Continental and Daimler saw more modest gains of 2.90% and 0.58% respectively.

Volkswagen’s surge came in response to electric vehicle production forecasts for 2021, with the markets betting that the German car manufacturing would overtake Tesla Motors.

It was also a bullish day for the banks. Deutsche Bank and Commerzbank rose by 1.21% and by 0.65% respectively.

From the CAC, it was a bullish day for the banks. BNP Paribas and Credit Agricole rose by 0.96% and by 0.45% respectively, with Soc Gen gaining 1.34%.

It was also a bullish day for the French auto sector. Stellantis NV and Renault saw gains of 1.41% and 3.10% respectively.

Air France-KLM rose by a modest 0.11%, while Airbus SE ended the day with a 0.77% loss.

On the VIX Index

It was a 7th consecutive day in the red for the VIX on Wednesday, marking a 8th day in the red from 9 sessions. Following a 1.20% fall on Tuesday, the VIX declined by 2.83% to end the day at 19.23.

The Dow rose by 0.58%, with the NASDAQ and the S&P500 gaining 0.40% and 0.29% respectively.

Both the NASDAQ and the S&P500 recovered from losses in response to the anticipated of the FED hold on interest rates near-term.

VIX 180321 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the European economic calendar. Key stats include 4th quarter wage growth and trade data for the Eurozone.

Expect trade figures to have a greater impact on the European majors.

From the U.S, Philly FED Manufacturing PMI and initial jobless claim figures will also influence later in the day.

While the stats will draw interest, it will also be the European markets’ first opportunity to respond to the FED projections and rate statement.

Away from the economic calendar, COVID-19 news will also need continued monitoring.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 101 points, with the DAX up by 109 points.

For a look at all of today’s economic events, check out our economic calendar.