It was a particularly bullish month for the European majors in November, with COVID-19 vaccine news delivering a much-needed bounce.
After 2 consecutive months in the red, the CAC40 surged by 20.12%. The DAX30 and the EuroStoxx600 weren’t far behind, with gains of 15.01% and 13.73% respectively. For the DAX30, November’s gains reversed losses from the year to move into positive territory year-to-date. The CAC40 and EuroStoxx600 still have some way to go in order to reverse losses from earlier in the year, however.
While the news of a COVID-19 vaccine drove demand for riskier assets, Joe Biden’s victory in the Presidential Election added support for riskier assets.
On the negative side, however, was a reintroduction of lockdown measures by member states including France and Germany.
Towards the end of the month, the COVID-19 numbers reflected the effect of the lockdown measures.
In France, the number of new COVID-19 cases and hospitalizations were in decline allowing the government to ease lockdown measures going into December.
On the geopolitical risk front, last-ditch Brexit negotiations failed to deliver a deal, which left the majors in the red at the end of the month.
It was a busy month on the Eurozone economic calendar. Looking at the private sector PMIs, it was a disappointing set of numbers for November.
Service sector activity contracted in France, Germany, and across the Eurozone as a result of a reintroduction of containment measures.
France’s services sector suffered the most, with the PMI tumbling from 46.5 to 38.0. With Germany’s Services PMI falling to 46.2, the Eurozone’s Services PMI fell from 46.9 to 41.3.
While Germany’s manufacturing sector avoided a contraction, sector activity in France contracted. The PMI fell from 51.3 to 49.1, dragging the Eurozone’s Composite PMI down from 50.0 to 45.1.
In spite of the disappointing numbers, hopes of a COVID-19 vaccine fuelled economic recovery fuelled muted the effect of the PMIs.
Other stats were mixed in the month.
Consumer and business sentiment weakened in October as a result of the 2nd wave of the pandemic and lockdown measures.
Germany’s ZEW Economic Sentiment Indicator fell from 52.3 to 32.8, with the Ifo Business Climate Index falling from 92.5 to 90.7.
Things were not much better on the consumer confidence front. The GfK Consumer Climate Indicator fell from -3.2 to -6.7.
For the Eurozone, consumer confidence also waned, with the Eurozone Consumer Confidence Index falling from -15.5 to -17.6.
On the positive front, however, were 3rd quarter GDP numbers for France, Germany, and the Eurozone. The respective economies had made progress in recovering from the 2nd quarter economic meltdown before November’s lockdown measures.
From the U.S
Labor market stats pointed to a stalling in the labor market recovery. Initial jobless claims inched up to 778k after having eased down to 709k in the 1st week of November.
While new COVID-19 cases surged across the U.S and a number of states reintroduced containment measures, COVID-19 vaccine news eased any market tensions in the month.
As a result of the jump in COVID-19 cases, consumer confidence softened in November. The CB Consumer Confidence Index fell from 101.4 to 96.1, with the Michigan Consumer Sentiment Index falling from 77.0 to 76.9.
On the positive, however, were private sector PMIs. Both the manufacturing and services sectors saw activity pick up in November.
In November, the Markit Manufacturing PMI rose from 53.4 to 56.7, with the Services PMI rising from 56.9 to 57.7.
The divergence from the Eurozone stemmed from a decision by the U.S administration to keep the economy running.
The ECB monetary policy meeting minutes, Economic Bulletin, and Financial Stability Review talked of doom and gloom.
From the minutes and other ECB reports and from ECB President Lagarde commentary, the markets are expecting further policy easing, however.
While the ECB minutes stated that there should be no commitments made, the 2nd wave COVID-19 pandemic is likely to force the ECB’s hands. It remains to be seen how far the ECB will go with a COVID-19 vaccine on the horizon.
From the FED, the FOMC meeting minutes also provided few surprises. Both central banks were focused on the effects of COVID-19 on their respective economies.
The respective minutes followed decisions by both to keep rates unchanged in the month.
The Market Movers
For the DAX: It was a bullish month for the auto sector in November. Daimler surged by 26.99%, with BMW and Continental jumping by 23.99% and by 24.73% respectively. Volkswagen trailed with a 12.52% gain in the month.
It was also a bullish month for the banks. Deutsche Bank rallied by 17.04%, with Commerzbank ending the month up by an impressive 28.8%.
From the CAC, it was a particularly bullish month for the banking sector. BNP Paribas surged by 43.95%, with Credit Agricole and Soc Gen ending the month with gains of 42.63% and 43.38% respectively.
It was also a bullish month for the auto sector. Peugeot rose by 28.06%, with Renault jumping by 56.94%.
Supported by COVID-19 vaccine news, however, it was Air France-KLM that impressed the most with a 77.94% rebound. Airbus SE also impressed, surging by 40.17%.
On the VIX Index
It was back into the red for the VIX in November, ending a run of 2 consecutive monthly gains. Reversing a 44.18% surge in October, the VIX tumbled by 45.90% to end the month at 20.57.
The downside for the VIX came as pharmas released impressive COVID-19 phase 3 clinical trial results. Talk of a vaccine being available by mid-December supported riskier assets, which sank the VIX.
In November, the Dow and NASDAQ rallied by 11.84% and by 11.80% respectively, with the S&P500 ending the month up by 10.75%.
The Month Ahead
We can expect another busy month ahead on the Eurozone economic calendar. Much of the economic data, however, will likely take a backseat in the month ahead.
We would expect COVID-19 vaccine updates and any progress towards a COVID-19 stimulus package on Capitol Hill to be key drivers.
On the geopolitical front, there’s also Brexit for the markets to consider. In late November, last-ditch talks failed to deliver an agreement. The two sides have just one month left until the end of the transition period.
Key stats that will draw interest, however, will include private sector PMIs for December, unemployment figures, and consumer and business sentiment numbers.
From the U.S, private sector PMIs, labor market numbers, and consumer confidence and spending will also influence.
There are also stats out of China that will need to continue reflecting China’s post-pandemic economic recovery.