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European Equities: A Week in Review – 01/08/20

The Majors

It was another bearish week for the European majors in the week ending 31st July. The DAX30 slid by 4.09% to lead the way down. It wasn’t much better for the CAC40 and EuroStoxx600, which saw losses of 3.49% and 2.98% respectively.

4 days in the red, including a heavy sell-off on Thursday, did the damage as economic data from Germany and the U.S weighed.

A continued rise in COVID-19 cases and a mixed bag on the corporate earnings front added to the market angst in the week.

The Stats

It was a busy week on the Eurozone economic calendar.

In a quiet first half of the week, however, stats were limited to Germany’s IFO Business Climate figures for July. Continued improvement in business sentiment delivered the only positive day for the DAX30 on Monday.

The markets then had to wait until Thursday for 2nd quarter GDP and July unemployment figures from Germany.

Germany’s economy contracted by 10.1% in the 2nd quarter, following a 2% contraction in the 1st quarter. Economists had forecast a 9% contraction. This was the largest decline since calculations began 50 years ago.

Year-on-year, the economy contracted by 11.7%, following a 1.8% contraction in the 1st quarter.

German Unemployment figures for July failed to provide support on the day, in spite of better than expected numbers. The unemployment rate held steady at 6.4%, with the number of unemployed falling by 18k.

On Friday, the French economy contracted by 13.8% in the 2nd quarter, with the Eurozone’s economy contracting by 12.1%.

June retail sales figures failed to provide support amidst the dire numbers, in spite of a further jump in sales. In France, consumer spending increased by 9%, following a 37.4% surge in May. German retail sales rose by 5.9%, following a 12.7% bounce in May.

Prelim inflation figures for July had a muted impact as the markets considered the economic woes. With a 2nd wave hitting the U.S and parts of the EU and Asia, the v-shaped recovery looks even less likely.

From the U.S

Stats were also skewed to the negative. Consumer confidence waned in July, with the CB Consumer Confidence Index hitting reverse.

Later in the week, initial jobless claims saw a 2nd consecutive weekly increase, with the U.S economy contracting by a whopping 32.9% in the 2nd quarter.

Things were not much better at the end of the week, with consumer sentiment revised down for July and inflationary pressures easing.

There were some pockets of positive, however. Durable goods and core durable goods orders continued to rise in June. Personal spending was also in recovery mode in June, though the 2nd wave pandemic could weigh on spending in July.

The Market Movers

From the DAX, it was a particularly bearish week for the auto sector. Volkswagen and Continental slid by 12.02% and 9.77% respectively to lead the way down. Things were not much better for BMW and Daimler, which saw losses of 8.88% and 6.33% respectively.

It was another bearish week for the banking sector. Commerzbank slid by 5.15%, with Deutsche Bank tumbling by 8.12%.

From the CAC, it was also a bearish week for the banks. Soc Gen tumbled by 11.64% to lead the way down. BNP Paribas and Credit Agricole weren’t far behind with losses of 8.13% and 8.75% respectively.

It was a particularly bearish week for the French auto sector, which reversed gains from the previous week. While Peugeot slid by 8.09%, the markets punished Renault, which slumped by 20.52% in the week.

Air France-KLM slid by 12.40%, while Airbus saw a more modest 3% loss in the week.

Earnings contributed to the moves in the week.

Renault reported a record net loss for the 1st half of the year. Volkswagen slashed its dividend off the back of an operating profit loss.

BNP Paribas fared better, with higher trading volumes providing support. The bank reported a net income loss for the 2nd quarter, however.

On the VIX Index

It was back into the red for the VIX, which saw its 6th week in the red out of 7. Reversing a 0.62% gain from the previous week, the VIX fell by 5.34% to 24.46 in the week ending 31st July.

The S&P500 and the NASDAQ ended the week up by 1.73% and by 3.69% respectively, while the Dow fell by 0.16%.

While economic data from the U.S was particularly dire, tech stocks delivered impressive quarterly earnings in the week. Mid-week, the FED had also delivered much-needed support, assuring the markets of continued support.

The Week Ahead

It’s another busy week on the Eurozone economic calendar.

The lion’s share of the stats is due out in the 1st half of the week. July private sector PMIs for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone are in focus.

With Spain getting hit by a 2nd wave of the pandemic, there will be plenty of interest in the numbers. Ultimately, however, expect the Eurozone’s Service and Composite to garner the greatest attention.

In the 2nd half of the week, Germany is back in focus. June factory orders, industrial production, and trade data are due out.

Following last week’s GDP numbers, the stats will need to be impressive to ease the pain…

From the U.S

It is also a particularly busy week ahead.

Key stats include ISM private sector PMIs for July, the weekly jobless claims, and nonfarm payrolls.

From Elsewhere

Private sector PMIs and trade data from China will also influence in the week.

Away from the economic calendar, however, COVID-19 news and progress towards the U.S stimulus package will also influence. As always, there is also the simmering tension between the U.S and China to monitor.