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European Equities: A Week in Review – 09/07/21

The Majors

It was a mixed week for the majors in the week ending 9th July, with a Friday rebound delivering much-needed support.

The CAC40 fell by 0.36%, while the DAX30 and the EuroStoxx600 ended the week up by 0.24% and by 0.19% respectively.

Economic data from Germany and other major economies weighed on riskier assets in the week.

While survey-based numbers have been impressive, non-survey-based data has raised some concerns over current economic conditions and the outlook.

Significantly, low vaccination rates in some economies and the ongoing spread of the Delta variant tested appetite for riskier assets.

Mixed signals by the FED were also a test, while the ECB left the door open for extended policy support by making adjustments to its objectives. The ECB interest rate target was revised and lifted to a firm 2%, which suggests extended status quo on the policy front.

The weak stats from Germany and some disappointing data from China in recent weeks muted the impact of the minutes, however.

In spite of the market jitters and impact on the majors, bargain hunters jumped in on Friday to reverse the losses from the week.

The Stats

It was another busy week.

Early in the week, service sector PMIs for June were in focus, with the stats skewed to the positive.

For the Eurozone, the services PMI increased from 55.2 to 58.3 in June, which was up from a prelim 58.0.

For June, the Composite PMI came in at 59.5. This was up from a May 57.1 and a prelim 59.2.

According to the finalized survey,

  • The private sector economy expanded at the fastest pace for 15-years in June.
  • Support came from a marked increase in output across both service and manufacturing.

By Country,

  • Ireland ranked 1st, with a 2-month low Composite PMI of 63.4, followed by Spain. In June Spain’s Composite PMI surged to a 256-month high 62.4.
  • Germany ranked 3rd, with a 123-month high 60.1, following by Italy and then France. Both saw their respective composites reach 41-month highs at the end of the 2nd

The rest of the stats in the week were skewed to the negative, however.

Economic sentiment for Germany and the Eurozone waned. The Eurozone’s ZEW Economic Sentiment Index falling from 81.3 to 61.2.

Stats from Germany also disappointed in the week.

Significantly, factory orders and industrial production both fell unexpectedly in May, with Germany’s trade surplus narrowing.

The numbers raised question marks over the resilience of the economy recovery.

On the monetary policy front, the ECB meeting minutes were also in focus. A shift in the ECB’s inflation target to 2% was the only headline.

From the U.S

After Monday’s holiday, service sector PMIs for June were in focus on Tuesday.

The all-important ISM Non-Manufacturing PMI fell from 64.0 to 60.1. While in decline, plus 60 levels continued to support the bullish outlook on the U.S economy.

On Wednesday, JOLT’s job openings for May had a muted impact on the Dollar as did the weekly jobless claim figures.

In the week ending 2nd July, initial jobless claims rose from 371k to 373k.

On the monetary policy front, the FOMC meeting minutes delivered mixed signals. The minutes pointed to a more patient stance on policy easing concerns of an imminent move. As expected, there was tapering talk, however.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental and Daimler slid by 4.99% and by 4.56% respectively to lead the way down, with BMW falling by 2.92%. Volkswagen, bucked the trend, however, ended the week up by 0.40%.

It was a bearish week for the banking sector. Deutsche Bank and Commerzbank saw losses of 3.57% and 3.38% respectively.

From the CAC, it was a bearish week for the banks. BNP Paribas slid by 2.94% to lead the way down, with Soc Gen ending the week down by 1.20%. Credit Agricole fell by a more modest 0.51%.

The French auto sector also struggled with Stellantis NV and Renault falling by 1.27% and by 5.66% respectively.

Air France-KLM joined the broader market in the red, with a 1.72% loss. Airbus bucked the trend, however, rising by 0.48%.

On the VIX Index

Two consecutive weeks in the red came to an end for the VIX. In the week ending 9th July, the VIX rose by 7.37%. Reversing a 3.52% decline from the previous week, the VIX ended the week at 16.18.

2-days in the green from 5 sessions, which included a 17.28% jump on Thursday delivered the upside in the week.

For the week, the Dow rose by 0.24%, with the NASDAQ and the S&P500 ending the week up by 0.43% and by 0.40% respectively.

VIX 100721 Weekly Chart

The Week Ahead

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

Industrial production figures for the Eurozone on Wednesday and trade data on Friday will be in focus.

Following some disappointing numbers last week, we can expect increased sensitivity to the Eurozone figures.

Through the week, finalized inflation figures for member states and the Eurozone will also draw interest.

The Eurozone’s inflation figures on Friday will be key on the inflation front.

From the U.S, inflation figures will also be in focus early in the week. With market concerns over FED monetary policy lingering, expect the numbers to influence.

On Thursday, jobless claims and Philly FED manufacturing numbers will draw attention.

Wrapping things up will be retail sales and consumer sentiment figures on Friday. Expect the retail sales figures to be key.

Also in focus, will be economic data from China late in the week. 2nd quarter GDP numbers are due out along with fixed asset investment, industrial production, and trade data.