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

The Majors

It was a relatively bullish week for the European majors in the week ending 19th June. The EuroStoxx600 rose by 3.22% to lead the way, with the DAX30 and CAC40 gaining 3.19% and 2.90% respectively.

While only partially reversing losses from the previous week, the majors remain in positive territory for the current month.

It was a mixed week for the bulls, with concerns over a 2nd wave of the COVID-19 pandemic testing risk appetite in the week.

Monetary policy support from the FED and expectations of more from the U.S government delivered the upside in the week, however.

On Monday, the FED announced that it would start buying individual corporate bonds in addition to ETFs. Named the Secondary Market Credit Facility and the FED can now purchase up to $250bn in corporate bonds of eligible issuers

The bonds need to have been rated investment grade as at 22nd March 2020. They must also have a remaining maturity of 5-years or less.

In addition, the FED also announced a “Mainstreet Lending Program” that would support small to medium-sized companies.

The Stats

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

Key stats included June’s ZEW Economic Sentiment figures for Germany and the Eurozone. April trade data and 1st quarter wage growth figures, along with finalized May inflation numbers for the Eurozone were also in focus.

There was a pickup in economic sentiment across both Germany and the Eurozone, according to figures released on Tuesday

Germany’s ZEW Economic Sentiment Index rose from 51.0 to 63.4, with the Eurozone’s rising from 46.0 to 58.6.

While positive and better than forecasts, it was the market reaction to the FED announcement from Monday that drove the majors on Tuesday.

Inflation, wage growth, and trade data had a muted impact. The markets just aren’t interested in the 1st quarter and April stats. On the inflation front, few are expecting this to be an area of focus for central banks near-term…

From the U.S

It was a mixed week on the day data front…

Retail sales bounced back in May, while industrial production figures suggested a slow recovery in the sector in May.

NY and Philly Manufacturing numbers for June were more positive, though the main area of focus remains on unemployment and spending.

On Thursday, the all-important jobless claims figures disappointed, with claims in the week ending 12th June up by 1.508m. This came in well above economist forecasts of 1.3m…

The weekly figure suggests that May’s bounce back in retail sales is unsustainable.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Daimler rose by 0.33% to buck the trend in the week. Continental and Volkswagen slid by 1.55% and by 3.46% respectively, with BMW seeing a more modest 0.30% decline.

It wasn’t much better for the banking sector. Commerzbank slid by 7.44%, with Deutsche Bank falling by 0.96%.

Lufthansa followed on from a previous week 2.51% loss with a 3.82% slide in the week.

From the DAX30, the story of the week was WIRECARD AG, however. Following a 65.46% slump on Thursday, shares fell by a further 33.06% on Friday, to leave WIRECARD AG down 73.96% for the week. A missing €2bn ended with the resignation of the CEO on Friday.

From the CAC, it was a mixed week for the banks. Soc Gen fell by 2.71% following a 12.34% tumble from the previous week, with Credit Agricole down by 0.74%. BNP Paribas bucked the trend, gaining 0.94%.

The French auto sector saw red, however, with Peugeot and Renault falling by 0.89% and by 3.95% respectively. It was a modest loss for the pair following double-digit losses from the previous week.

Air France-KLM followed the previous week’s 13.34% tumble with a 5.49%, slide, while Airbus rose by 2.84%. In the previous week, Airbus had slumped by 17.31%.

On the VIX Index

It was a week in the red, with the VIX seeing red for 4 weeks out of 5. In the week ending 19th June, the VIX fell by 2.69%. Following a 47.19% jump in the previous week, the VIX ended the week at 35.12.

A mixed week left the U.S majors with relatively modest gains, as the markets grappled with spikes in new COVID-19 cases.

While economic data from the U.S delivered mixed results, it was the FED’s move into individual corporate bonds that weighed on the VIX.

The S&P500 ended the week up by 1.86%, with the Dow and NASDAQ gaining by 1.04% and by 3.73% respectively.

The Week Ahead

It’s a busier week ahead on the Eurozone economic calendar, and we can expect economic data to influence in the week.

On Tuesday, June’s prelim private sector PMIs are due out for France, Germany, and the Eurozone. While manufacturing sector activity remains key, we would expect the service sector PMIs to garner greater interest.

We continue to see a recovery in the services sector as pivotal to any economic rebound across the Eurozone. A removal of lockdown measures should lead to a jump in consumption to support the sector.

Unemployment, however, will be a drag. This week’s figures will reveal just how much of a drag this is likely to be.

The focus will then shift to Germany’s June business confidence figures on Wednesday and July consumer confidence figures on Thursday.

Business and consumer confidence will need to continue improving to support a pickup in hiring and spending near-term.

From elsewhere, U.S private sector PMIs, May’s durable goods orders, and the weekly jobless claims will also influence.

Outside of numbers, expect particular attention to COVID-19 news and any progress by the U.S government towards the next stimulus package.