European Equities: A Week in Review – 24/09/21

The Majors

It was a relatively bullish week for the majors in the week ending 24th September. The CAC40 led the way, rising by 1.04%, with the DAX30 and the EuroStoxx600 seeing gains of 0.27% and 0.31% respectively.

Economic data from the Eurozone failed to impress in the week.

Prelim private sector PMIs for September came in weaker raising further red flags over the economic outlook. German business sentiment also softened, albeit moderately.

While the stats were skewed to the negative, an uncommitted FED delivered the majors with support in the week. The FOMC projections were market friendly, with the FED also holding back on a tapering start date.

From the U.S, economic data was also skewed to the negative, though the numbers were not weak enough to cause concern.

Away from the economic calendar, Evergrande was a key driver, ultimately delivering support.

The Stats

Private sector PMIs and German business sentiment were in focus, with the stats skewed to the negative.

In September, the French Manufacturing PMI fell from 57.5 to 55.2, with the Services PMI down from 56.3 to 56.0.

Germany’s Manufacturing PMI declined from 62.6 to 58.5, with the Services PMI falling from 60.8 to 56.0.

As a result, the Eurozone’s Manufacturing PMI fell from 61.4 to 58.7, and the Services PMI down from 59.0 to 56.3.

According to the Eurozone’s September survey,

  • Business activity grew at a markedly reduced rate, reflecting the peaking of demand in Q3, supply chain bottlenecks, and lingering concerns over the pandemic.
  • Increased concerns over the Delta variant hit business expectations.
  • As a result, the rate of job creation moderated further from July’s 21-year peak.
  • Costs rose at the fastest pace in 21-years, however, as demand continued to outstrip supply.
  • New export order growth slowed to its lowest level since February, cooling sharply in the manufacturing sector.

Germany’s IFO Business Climate Index fell from 99.6 to 98.8, with the Current Assessment sub-index down from 101.4 to 100.4. The Business Expectations sub-index declined from 97.5 to 97.3.

From the U.S

A quiet start to the week left the markets on hold ahead of Wednesday’s FOMC policy decision and projections.

Stats were limited to housing sector numbers that had a muted impact on the Dollar and beyond.

On Wednesday, the FED left policy unchanged as anticipated. The markets had expected a firm timeline on tapering, which didn’t materialize, however. While there were no fixed timelines, the projections revealed a divided camp on the interest rate front, with some pointing to rate hikes from 2022.

It was good enough to deliver Dollar support as central banks elsewhere shifted back due to the Delta variant.

On Thursday, economic data failed to test support for riskier assets, with the stats skewed to the negative.

In the week ending 17th September, initial jobless claims climbed from 335k to 351k.

Prelim private sector PMIs pointed to softer growth, albeit marginally.

In September, the Manufacturing PMI fell from 61.1 to 60.5, with the Services PMI declining from 55.1 to 54.4.

FED Chair Powell wrapped things up at the end of the week, with the FED Chair looking to soften market expectation of rate hikes near-term.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental fell by 1.48% to buck the trend. Daimler led the way, however, rallying by 4.56%, with BMW ending the week up by 1.62%. Volkswagen saw a more modest 0.59% gain in the week.

It was also a mixed week for the banking sector. Deutsche Bank slid by 2.21%, while Commerzbank ended the week flat.

From the CAC, it was a bullish week for the banks. Soc Gen rose by 1.07%. Credit Agricole and BNP Paribas led the way, however, rallying by 2.06% and by 2.35% respectively.

It was also a bullish week for the French auto sector. Stellantis NV rose by 0.51%, with Renault rallying by 6.89%.

Air France-KLM led the way, however, surging by 15.17%, with Airbus ending the week up by 2.09%.

On the VIX Index

It was a 2nd consecutive week in red for the VIX in the week ending 24th September.

Following a 0.67% decline from the previous week, the VIX slid 14.70% to end the week at 17.75.

4-days in the red from 5 sessions, which included 14.33% fall on Wednesday and a 10.73% decline on Thursday delivered the downside. A 23.55% jump on Monday limited the downside from the week, however.

For the week, the NASDAQ rose by 0.02%, with the Dow and the S&P500 ending the week up by 0.62% and by 0.51% respectively.

VIX 250921 Weekly Chart

The Week Ahead

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

German consumer sentiment and unemployment figures, along with French consumer spending will be in focus mid-week.

At the end of the week, German retail sales and manufacturing PMIs will also influence.

September PMIs are due out for Italy and Spain, with finalized PMIs for France, Germany, and the Eurozone also in focus.

On the inflation front, prelim September figures for member stats and the Eurozone will also influence. A pickup in inflationary pressure would further question the current the ECB’s current transitory outlook.

From the U.S, it’s also a busy week ahead.

Core durable goods and consumer confidence figures will be in focus early in the week.

In the 2nd half of the week, jobless claims, inflation, personal spending and manufacturing sector data will also influence. Barring any marked revisions, GDP numbers for the 2nd quarter should have a muted impact on the majors.

From China, private sector PMIs will also provide the majors with direction on Thursday. Economic data from China has been on the weaker side in recent months. Softer manufacturing sector growth would test support for the majors.

Away from the economic calendar, expect news updates on Evergrande’s debt woes to also influence.