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European Equities: A Week in Review – 08/01/21

The Majors

It was a bullish start to the year for the European majors. In the week ending 8th January, the EuroStoxx600 rallied by 3.04%. The CAC40 and the DAX30 weren’t far behind, with gains of 2.80% and 2.41% respectively.

Early in the week, the EU’s approval of the Moderna Inc. vaccine delivered support to the European majors.

Adding to the upside in the week was expectations of more U.S fiscal stimulus to support the U.S economic recovery.

A “Blue Wave” will now allow Joe Biden and the incoming U.S administration to deliver stimulus unhindered. The Democrats won the Georgia run offs, taking control of the Senate.

The upside in the week came in spite of Germany extending its lockdown period and France considering a reintroduction of containment measures.

For the markets, the combination of COVID-19 vaccinations and U.S stimulus expectations was good enough.

The Stats

It was a busy week on the economic calendar.

The private sector, French consumer spending, and the German economy were in the spotlight in the week.

The Private sector

In December, the manufacturing sector saw a pickup in activity, driven by Germany that saw its PMI hit a 34-month high 58.3. The Eurozone’s manufacturing PMI increased from 53.8 to 55.2 in December, down marginally from a prelim 55.5.

New export sales saw a marked increase at the end of the year. painting a rosier picture for 2021.

While the service sector continued to contract, the rate of contraction eased. The Eurozone’s services PMI rose from 41.7 to 46.4 in December, down from a prelim 47.3.

At composite level, the Eurozone’s PMI increased from 45.3 to 49.1, which was also down from a prelim 49.8.

Containment measures across the Eurozone continued to pin back service sector activity at the end of the year.

The German Economy

From Germany, trade. retail sales, unemployment, and factory order figures were also upbeat, supporting the majors.

In November, retail sales saw an unexpected 1.9% rise, following a 2.6% increase in October.

Unemployment figures also impressed, with unemployment falling by 37K in December, following a 40K slide in November.

Economists had forecasted retail sales to fall by 2% and for unemployment to rise by 10K.

Late in the week, factory orders jumped by 2.3% in November, versus a forecasted 1.2% decline. The upside came off the back of a 3.3% increase in October.

Industrial production figures also came in ahead of forecasts, with production up by 0.9%, following a 3.4% jump in October. Economists had forecast a 0.7% rise.

On the negative, however, was a narrowing in Germany’s trade surplus from €18.2bn to €16.4bn in November.

The narrowing resulted from a larger increase in imports than exports, rather than a slide in exports, however, suggesting strong demand.

Exports rose by 2.2%, with imports jumping by 4.7%.

The Rest

Also on the negative was French consumer spending figures. As a result of lockdown measures, spending tumbled by 18.9% in November. In the month prior, spending had risen by 3.9%.

Other stats in the week included December prelim inflation figures and retail sales and unemployment figures for the Eurozone.

These stats had a muted impact on the majors, however, as did the ECB’s Economic Bulletin.

From the U.S

Economic data was also on the busier side.

Private sector PMI and labor market numbers were the key drivers in the week.

In December, the ISM Manufacturing PMI rose from 57.6 to 60.7, with the Services PMI climbing from 55.9 to 57.2.

A 123k fall in nonfarm payrolls in December, according to the ADP failed to spook the markets ahead of the official government figures.

Jobless claims figures eased any major concerns over a further deterioration in labor market conditions. In the week ending 1st January, initial jobless claims slipped from 790k to 787k.

At the end of the week, nonfarm payrolls fell by 140K in December, partially reversing a 336k increase in November.

In spite of the fall, the unemployment rate held steady at 6.7%, with the participation rate holding steady at 61.5%.

Optimism towards the economic outlook, stemming from fiscal stimulus expectations and COVID-19 vaccinations muted the effects of the NFP figures.

On the monetary policy front, the FOMC meeting minutes had a muted impact on the majors, with U.S politics in the spotlight.

The Market Movers

From the DAX, it was a bearish week for the auto sector. Volkswagen slid by 3.63%, with BMW and Continental falling by 2.45% and by 1.77% respectively. Daimler saw a more modest 0.22% loss in the week.

It was a particularly bullish week for the banking sector, however. Deutsche Bank rallied by 6.48%, with Commerzbank gaining 3.80%.

From the CAC, it was a bullish week for the banks. BNP Paribas rallied by 5.06%, with Credit Agricole and Soc Gen rising by 3.39% and by 4.47% respectively.

It was a mixed week for the French auto sector, however. Peugeot fell by 1.30%, while Renault ended the week up by 2.46%.

Air France-KLM reversed a 5.28% gain with a 5.02% slide, while Airbus ended the week up by 0.36%

On the VIX Index

It was a 3rd week in the red from 4 for the VIX. In the week ending 8th January, the VIX fell by 5.23%. Reversing a 5.67% gain from the previous week, the VIX ended the week at 21.56.

For the week, NASDAQ rallied by 2.43%, with the Dow and S&P500 gaining 1.61% and 1.83% respectively.

The U.S majors hit record highs in the week, supported by expectations of substantial fiscal stimulus to support an economic recovery.

Mid-week, the Democrats won the Senate race, giving them control of both houses.

Following chaos on Capitol Hill on Wednesday, Biden was certified as the U.S President, with Trump stating that there would be an orderly handover on Inauguration Day.

VIX 080121 Weekly Chart

The Week Ahead

It’s a particularly quiet week ahead on the economic calendar. Key stats include November industrial production and trade data for the Eurozone.

Barring particularly dire trade figures, expect the industrial production figures to have the greatest influence.

Finalized December inflation figures for France and Spain are also due out but should have a muted impact on the majors.

From the U.S, inflation, the weekly jobless claims figures, retail sales and consumer sentiment figures will influence in the week.

Out of China, expect trade data to also provide direction.

Away from the economic calendar, COVID-19 news and chatter from Capitol Hill will continue to remain in focus.