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European Equities: A Week in Review – 06/10/20

The Majors

It was a bearish week for the European majors in the week ending 16th October.

The DAX fell by 1.09% to lead the way down, with the CAC40 and EuroStoxx600 seeing losses of 0.22% and 0.77% respectively.

With economic data on the lighter side in the week, it was geopolitics and COVID-19 that weighed on the majors.

A continued rise in new COVID-19 cases across the EU weighed heavily on the European majors in the week. The reintroduction of lockdown measures delivered greater uncertainty over the economic outlook.

Brexit woes also tested market risk sentiment, with the EU and the UK failing to progress towards a Brexit deal.

From the U.S, fading hopes of a COVID-19 stimulus Bill ahead of the U.S Presidential Election was also market negative.

It could have been much worse, however, with a Friday rally paring some of the losses from earlier in the week.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

In the early part of the week, ZEW Economic Sentiment figures for the Eurozone and Germany were in focus. Concerns over Brexit and the U.S Presidential Election led to a slide in the respective indicators for October.

Germany’s Economic Sentiment Indicator fell from 77.4 to 56.1, with the Eurozone’s falling from 73.9 to 52.3.

The focus then shifted to economic data from the Eurozone that included industrial production, inflation, and trade data.

In August, industrial production rose by just 0.7%, following a 5% jump in July. More significantly, however, was a marked narrowing in the Eurozone’s trade surplus. The surplus narrowed from €27.9bn to €14.7bn.

According to Eurostat,

  • Exports of goods to the rest of the world fell by 12.2%, compared with August 2019, to €156.3bn.
  • Imports from the rest of the world fell by 13.5%, compared with August 2019, to €141.6bn.
  • In August 2019, the trade surplus had stood at €14.4bn.
  • For the period January to August 2020, exports to the rest of the world fell by 12.4%, with imports down by 13.1%.
  • Intra-euro area trade fell by 12.3% when compared with the same period in 2019.

Inflation figures for the Eurozone also failed to impress at the end of the week, with annual inflation down to 0.3% in September. In August, annual inflation had been down by 0.2%.

According to Eurostat,

  • Greece (-2.3%), Cyprus (-1.9%), and Estonia (-1.3%) had the lowest annual rates of inflation.
  • The highest contribution to the annual euro area inflation came from food, alcohol, & tobacco (+0.34 pp) and services (+0.24pp).

From the U.S

It was a busy week on the economic data front.

Key stats included September’s inflation and retail sales figures, October manufacturing data, and the weekly jobless claims.

It was a mixed bag for the Dollar in the week. The annual rate of core inflation held steady at 1.7%. Month-on-month increases in consumer prices, however, were softer than in August.

Wholesale inflation was marginally better, with the producer price index rising by 0.4% in September. In August, wholesale prices had risen by 0.3%.

For October, the NY Empire State Manufacturing Index fell from 17.0 to 10.5, while the Philly Manufacturing Index rose from 15.0 to 32.3.

At the end of the week, retail sales and consumer sentiment figures were positive, supporting riskier assets.

In September, core retail sales rose by 1.5%, with retail sales jumping by 1.9%. Economists had forecast increases of 0.5% and 0.7% respectively.

Consumer sentiment also improved in October, with the Michigan Consumer Sentiment Index rising from 80.4 to 81.2. The improved sentiment came in spite of dire labor market conditions.

In the week ending 9th October, initial jobless claims came in at 898k, which was up from 845k from the week prior.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental and Daimler rose by 0.25% and by 2.12% respectively, with Volkswagen eking out a 0.01% gain. BMW bucked the trend, however, sliding by 2.48%.

It was a bearish week for the banking sector. Commerzbank slid by 8.09, with Deutsche Bank ending the week down by 0.25%.

From the CAC, it was a particularly bearish week for the banks. BNP Paribas and Credit Agricole slid by 3.62% and by 4.30% respectively. Soc Gen saw a more modest 2.90% loss following last week’s 12.5% rally.

The French auto sector saw green, however. Peugeot rose by 3.22%, with Renault rallying by 4.74%.

Air France-KLM partially reversed an 11.25% gain from the previous week with a 6.07% slide, while Airbus fell by 3.65%.

On the VIX Index

It was the 3rd week in the green from 4 for the VIX. In the week ending 16th October, the VIX rose by 9.64%. Reversing a 9.52% loss from the previous week, the VIX ended the week at 27.41.

A lack of progress towards a U.S Stimulus Bill, rising COVID-19 cases, and uncertainty over the U.S Presidential Election supported the VIX.

Economic data delivered mixed signals, also raising concerns over the pace of the economic recovery.

In spite of the risks being tilted to the downside and the rise in the VIX, it was a positive week for the U.S majors. In the week ending 16th October, the S&P500 and the Dow rose by 0.07% and by 0.19% respectively. The NASDAQ led the way, however, gaining 0.79%.

VIX 17/10/20 Weekly Chart

The Week Ahead

It’s a relatively quiet week ahead on the Eurozone economic calendar.

After a quiet start to the week, consumer confidence figures for Germany and the Eurozone are in focus on Thursday.

With the latest spike in new COVID-19 cases, a marked decline in confidence will raise concerns regarding consumption.

At the end of the week, the focus will shift to October’s prelim private sector PMIs. Another fall in the services PMIs will be a test for the majors, with the ECB looking for a consumption-driven economic recovery.

We can expect manufacturing PMI numbers to also influence…

From elsewhere, 3rd quarter GDP numbers due out of China on Monday will set the tone for the week.

From the U.S, it’s a relatively quiet week on the economic data front. The weekly jobless claims on Thursday and private sector PMIs on Friday will influence.

Away from the economic calendar, U.S politics, COVID-19 news, and Brexit will also continue to provide direction.