European Equities: A Week in Review – 23/05/20

The Majors

It was a bullish week for the European majors in the week ending 22nd May. The DAX30 rallied by 5.82% to lead the way, with the CAC30 and EuroStoxx600 gaining 3.90% and 3.63% respectively.

Economic data took a back seat once again, as the markets continued to focus on the ongoing easing of lockdown measures.

Across the most affected EU member states, the downward trend in new cases continued, in spite of the easing of confinement measures.

It wasn’t plane sailing, however, with rising tensions between the U.S and China weighing on risk appetite in the week.

Ultimately, however, the markets have lived through Trump’s negotiation styles before. Actually ousting Chinese companies from U.S exchanges would have significant implications… Let’s not forget the Investment Dollars that the likes of Apple have plowed into China over the years…

Trump will also need to be cognizant of the fact that the U.S Presidential Election is not too far off.

On the Fiscal policy front, progress towards an EU COVID-19 recovery fund also supported the demand for the majors in the week.

The Stats

It was a relatively busy week on the Eurozone economic calendar. It was a week of 2-halves on the economic data front.

In the 1st half of the week, May’s ZEW economic sentiment figures for the Eurozone and Germany and Eurozone consumer confidence figures were in focus.

Both sets of numbers provided support, with the economic sentiment in Germany seeing a marked pickup.

The upside came as the downward trend in new coronavirus cases continued and lockdown measures eased.

In the 2nd half of the week, the focus shifted to May’s prelim private sector PMIs for France, Germany, and the Eurozone.

While we didn’t see a rebound similar to that seen in China, the survey did suggest that the worst may have passed.

This may have been good enough in the week but what the market expects, in terms of the pace of the economic recovery, remains to be seen.

FED Chair Powell spoke early in the week of the U.S economic recovery, delivering a reality check for the markets. Powell forecasted a recovery by the end of 2021. That’s some way off and the forecast assumes no hiccups along the way…

From the U.S, while it was a relatively busy week on the calendar, it was the weekly jobless claims figures that tested the majors.

Another 2.438m jump in initial jobless claims in the week ending 15th May was certainly not needed.

On the positive, however, the FED reassured the markets that there was plenty of ammo left to lead the U.S economy back to growth.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Continental and Daimler surged by 10.42% and 11.11% respectively to lead the way. BMW and Volkswagen weren’t far behind, with gains of 7.71% and 9.10% respectively.

It was a particularly bullish week for the banking sector. Commerzbank jumped by 14.88%, with Deutsche Bank rallying by 12.25%.

Lufthansa also found support, rallying by 7.53% to reverse a 5.10% loss from the previous week.

From the CAC, it was a relatively bullish week for the banks. BNP Paribas and Soc Gen rallied by 7.69% and by 6.03% respectively, while Credit Agricole saw a more modest 1.17% gain.

It was a mixed week for the French auto sector, however. Peugeot rose by 0.61%, while Renault fell by 1.37%.

Air France-KLM saw more losses, with an 8.06% slide following on from a 6.91% fall from the previous week. Airbus recovered most of the previous week’s 12.06% tumble, with a 10.06% gain.

On the VIX Index

It was back into the red for the VIX in the week ending 22nd May, with the VIX falling by 11.70%. Partially reversing a 13.97% gain from the previous week, the VIX ended the week at 28.2.

A continued easing of lockdown measures and assurances by the FED of continued support overshadowed rising tensions between the U.S and China.

In the early part of the week, news of positive results from early trials for a COVID-19 vaccine also supported riskier assets.

The S&P500 ended the week up by 3.20%, with the Dow and NASDAQ gaining by 3.29% and by 3.44% respectively.

VIX 23/05/20 Weekly Chart

The Week Ahead

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

Expect market focus to remain on business and consumer confidence and then post-April consumption figures.

A continued pickup in both consumer and business confidence in Germany would certainly be a boost. What impact the rise in tension between the U.S and China will have remains to be seen, however, and could be a curveball in the week ahead.

Other stats include 2nd estimate GDP figures for the 1st quarter and prelim inflation figures for May. These should have limited influence.

From elsewhere, we will expect the weekly jobless claims figures from the U.S to continue to be a market area of focus. In the week ahead, however, we will also be eyeing the May consumer confidence figures from the U.S.

With the U.S economy fueled by consumption, are consumers buying into the Trump gamble of opening up the economy?

The markets will also need to monitor the daily COVID-19 numbers.