European Equities: A Week in Review – 29/02/20

The Majors

It was a week to forget for the European majors and beyond.

Market reaction to the continued spread of the coronavirus drove demand for safe havens in the week.

For the DAX30, it was 7 consecutive day in the red, sinking the German Boerse into corrective territory in the week. It was even more dramatic for the EuroStoxx600, which fell from an all-time-high 433.9 on 19th February into corrective territory, with a 10% loss coming in just 6 trading sessions.

So, looking at the numbers, the DAX30 ended the week down by 12.44% to lead the way. The CAC40 and EuroStoxx600 weren’t far behind with losses of 11.94% and 12.25% respectively. Heavy losses on Friday just added salt into the wounds, with the majors not only in corrective territory but also in the deep red for February.

The CAC40 fell by 8.55% in February, with the DAX30 and EuroStoxx600 sliding by 8.41% and by 8.54% respectively.

We aren’t in bear territory yet, but we could be should economic data begin to spook investors alongside the coronavirus.

The Stats

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

Through the 1st half of the week, key stats included German business sentiment figures and 2nd estimate GDP numbers for the 4th quarter.

Business sentiment improved in February, with the IFO Business Climate Index rising from 96.0 to 96.1. The upside came off the back of a pickup in business optimism that was partially offset by negative sentiment towards the current state of the economy.

Interestingly, the figures failed to reflect any negative bias stemming from the spread of the coronavirus. The timing of the survey likely failed to capture the spread across Europe and the U.S.

Germany’s GDP numbers were in line with 1st estimates, affirming the stall in the economy in the 4th quarter. Not great with what’s on the horizon…

Later in the week, French consumer spending and 2nd estimate GDP numbers and German unemployment figures were in focus on Friday.

A slide in consumer spending in January will be yet one more concern for the ECB. It wasn’t all bad, however, with Germany’s labor market resilient at the turn of the year.

On the monetary policy front, ECB President Lagarde was of the view that the spread of the virus had yet to have enough of an impact on inflation to warrant monetary policy support. Next week’s stats could change that narrative…

The Market Movers

From the DAX, it was a bearish week for the auto sector. Daimler and Volkswagen led the way down, with weekly losses of 11.62% and 10.67% respectively. BMW and Continental weren’t far behind, with losses of 9.37% and 9.42% respectively.

It was a particularly bearish week for the banking sector, with Deutsche Bank and Commerzbank tumbling by 16.88% and 20.09% respectively.

From the CAC, things were not much better for the banks. BNP Paribas slumped by 17.74%, while Credit Agricole and Soc Gen seeing losses of 17.73% and by 17.64% respectively.

The French auto sector took a more modest hit, with Renault and Peugeot sliding by 16.35% and 8.57% respectively.

Travel and tourism stocks were worse hit, however. Germany’s Lufthansa tumbled by 21.17%, with Air France-KLM ending the week down by 23.90%.

On the VIX Index

The VIX rose by 2.43% on Friday. Following on from a 42.09% surge on Thursday, the VIX ended the week up by a whopping 134.84%.

Risk aversion plagued the global financial markets driving the VIX to its highest level since hitting 50.3 back in February 2018. On Friday, the VIX had hit a week high 49.5 before easing back.

Updates of the spread of the coronavirus led the U.S equity markets into corrective territory and the largest weekly slide since the Global Financial Crisis.

For the week, the S&P500 slid by 11.49%.

VIX 29/02/20 Daily Chart

The Week Ahead

It’s another busy week ahead on the Eurozone economic calendar. Through the first half of the week, private sector PMI numbers are due out of Italy and Spain. Finalized numbers are also due out of France, Germany, and the Eurozone.

Expect Italy’s manufacturing PMI on Monday and the Eurozone’s composite on Wednesday to have the greatest influence. There could be revisions to German and French numbers to look out for, however.

On Wednesday, German and Eurozone retail sales figures will also be in focus ahead of German factory orders on Friday.

The markets will be looking for some indication of what impact the coronavirus has had on the economy. February and March numbers will be a better guide.

From elsewhere,

Private sector PMI numbers out of China and the U.S in the 1st half of the week will also influence. Expect manufacturing PMI numbers out of China from the weekend and on Monday to have a greater impact, however.

It will ultimately boil down to updates on the coronavirus, however. The next big risk to the market is for the WHO to announce the coronavirus as a pandemic and for more cases in the U.S…

The S&P 500 Enters Correction, Coronavirus Fear Grows, Consumer Data Still Solid

The U.S. Market Is Down In Early Trading

The U.S. index futures are down hard again in Friday trading. This is the 7th day of decline and puts the major indices deep in correction territory. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all down more than 10% in that time.  The Dow Jones Industrial Average fell nearly 1200 points in Thursday action, its biggest one-day drop on record. This has been the worst week for equities since 2008 and the pain is not yet over.

The sell-off was sparked by the coronavirus and the market’s realization it will have a profound impact on global GDP this year. Yesterday’s warning from Goldman Sachs, that EPS growth would fall to 0% or lower, is the prime example. In virus news, the spread of the virus is not contained. New Zealand and Nigeria have reported their first cases while China and South Korean totals continue to rise. South Korea is now the center of the spread with 500 new cases. China’s epidemic appears to be slowing with only 327 new cases.

The virus is expected to gain a foothold in the U.S. and may already have done so. California reported its first case of community-based transmission and now has roughly 8,500 hundred people under observation.

 Stocks On The Move

Caterpillar is the worst-performing stock in the Dow. The bellwether of global economic activity was down as much as 3.0% in early pre-market trading but cut the losses to only -2.0% by the open of the session. Shares of Apple were also down about 3.0% in early trading while Chevron and Cisco both posted losses near 2.0%. Hard-hit S&P 500 stocks include Norweigan Cruise Lines and American Airlines are moving lower in today’s session and down more than 20% since the broad-market sell-off began.

Paypal is the latest to issue a warning about the virus. The global payments company says revenue will be impacted by the virus because the cross-border activity is slowing. Paypal says revenue will come in at the lower end of the previously stated range and below consensus.

Consumer Data Remains Strong

The day’s economic calendar is topped by the Personal Income and Spending data. The report shows income rose by a larger than expected 0.6% while spending increased only 0.2%. Analysts had been expecting income to rise by about 0.3% and spending the same. Looking in the rearview mirror, the previous month’s income was revised down by 0.1% while spending was revised higher. On the inflation front, PCE prices rose 0.1% last month and are up 1.7% YOY. At the core level, consumer inflation is up 1.6% from last year.

Global Shares Routed as Investors Ditch Risky Assets on Fear of Worldwide Recession

The major European stock indexes are trading sharply lower on Friday after entering correction territory the previous session, after falling 10% below the record highs seen on February 19. This follows steep sell-offs in seven major Asia-Pacific markets and the United States, which have also reached correction territory.

It took just six days for the benchmark S&P 500 and NASDAQ Composite Indexes to fall from record highs into correction territory. On Thursday, the blue chip Dow Jones Industrial Average plunged 1,200 points, its biggest one-day drop ever.

In Europe, at 11:44 GMT, the UK’s FTSE 100 Index is trading 6602.33, down 194.07 or -2.86%. Germany’s DAX Index is at 11974.17, down 393.29 or -3.18% and France’s CAC is trading 5354.27, down 141.33 or -2.57%.

Global Stocks Set for Worst Week Since 2008 Financial Crisis

World share markets were headed for their worst week since the depths of the 2008 financial crisis as investors ditched risky assets on fears the coronavirus would become a pandemic and trigger a global recession, Reuters said.

Hope that Fed Comes to the Rescue

Hopes that that the epidemic that started in China would be over in a few months and economic activity would return to normal have been shattered, as new infections reported around the world now surpass those in China.

Hope remains, however, that the U.S. Federal Reserve would cut interest rates as soon as next month to support economic growth.

“We don’t even need to wait for economic data to wee how badly the economy is being hit. You can tell that the sales of airlines and hotels are already falling by a half or something like that,” said Tomoaki Shishido, senior economist at Nomura Securities.

“It is fair to say the impact of the coronavirus will be clearly much bigger than the U.S.-China trade war. So the Fed does not have a reason to take a wait-and-see stance next month,” Shishido said.

Expectations the Fed will cut interest rates to cushion the blow are rising in money markets. Analysts say Fed funds futures are now pricing in about a 75% chance of a 25-basis point cut at the central bank’s March 17-18 meeting.

Fear of Major Global Economic Slump

Fear of a major economic slump is driving commodity and equity prices lower.

Fear as measured by the CBOE volatility index or VIX, jumped to 39.16, the highest level in about two years, well out of the 11-20 range of recent months, according to Reuters.

The index, which measures expected swings in U.S. shares in the next 30 days, typically shoots up to around 50 when bear market selling hits is heaviest and approached almost 90 during the 2008-09 financial crisis, Reuters wrote.

“The coronavirus now looks like a pandemic. Markets can cope even if there is a big risk as long as we can see the end of the tunnel,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “But at the moment, no one can tell how long this will last and how severe it will get.”

European Equities: Futures Point to more Doom and Gloom ahead

Economic Calendar:

Friday, 28th February

French Consumer Spending (MoM) (Jan)

French GDP (QoQ) (Q4) 2nd Estimate

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Italian CPI (MoM) (Feb) Prelim

German CPI (MoM) (Feb) Prelim

The Majors

It was back into the deep red for the European majors, with Wednesday’s mixed session having been just a brief respite for the bulls.

The EuroStoxx600 slid by 3.75% to lead the way down, with the CAC40 and DAX40 ending the day down by 3.32% and 3.19% respectively.

A greater spread of the coronavirus across new countries and a sharp rise in new cases in Italy weighed on risk appetite on Thursday.

Fears of a recession in the world’s 8th largest economy rattled the markets, with China, Japan, Singapore, and South Korea already under the cosh.

Travel and Leisure stocks continued to bear the brunt of investor ire, though all sectors ended the day in the red.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Thursday. Economic data included prelim February inflation figures out of Spain and finalized consumer confidence figures for the Eurozone.

Unsurprisingly, economic data continued to play 2nd fiddle to the news wires and coronavirus updates.

The Eurozone’s consumer confidence indicator came in at -6.6 according to finalized numbers, which was in line with prelim. In January, the indicator had stood at -8.1.

  • The pickup in consumer confidence was attributed to a brighter outlook on the economic situation. Sentiment will likely tumble in the next set of numbers.
  • By contrast, the Employment Expectations Indicator eased mildly from 105.3 to 105.0.

Later in the day, U.S 4th quarter GDP numbers and durable goods orders were in focus but also failed to influence late in the session.

Core durable goods rose by 0.9% in January, following a 0.1% rise in December. Durable goods fell by 0.2%, however, partially reversing a 2.9% jump from December.

2nd estimate GDP numbers were in line with 1st estimates, with even a 5.2% jump in pending home sales not enough to prevent the slide.

The Market Movers

For the DAX: autos were back into the red on Thursday. BMW and Volkswagen led the down, with the pair sliding by 3.80% and by 4.79% respectively. Continental and Daimler saw more modest losses of 2.48% and 2.69% respectively.

Things were no better for the banks, which saw heavier losses on the day. Commerzbank slid by 5.25%, with Deutsche Bank down by 5.55%.

Deutsche Lufthansa was the worst performer on the DAX for a 2nd consecutive day, sliding by 6.48%.

From the CAC, it was another bearish day for the banks. BNP Paribas slid by 5.87%, with Credit Agricole and Soc Gen seeing heavier losses of 6.16% and by 6.44% respectively.

The auto sector also struggled, with Peugeot and Renault ending the day down by 1.89% and 6.38% respectively.

Air France-KLM slumped by 7.17% on the day.

The latest sell-off leaves the majors in corrective territory, with the EuroStoxx600 way off its all-time high from earlier in the month.

On the VIX Index

The VIX resumed its upward trend on Thursday, surging by 42.09%. Reversing a 1.04% loss from Wednesday, a 5th day in the red out of 6 saw the VIX end the day at 39.2.

Risk aversion spread across the global financial markets, with the S&P500 sliding into corrective territory on Thursday. Coronavirus cases in the U.S and the talk of a U.S pandemic led the move into corrective territory.

We had seen the markets previously buy into the view that the U.S economy would likely be unscathed from the virus.

Commentary from the CDC and rise in the number of cases suggested otherwise, however, with the U.S economic outlook now also uncertain.

When considering the economies that have fallen at the hands of the virus and those at risk, the doom and gloom sentiment does seem justified.

For the current week, Monday through Thursday, the S&P500 was down by 10.76%.

VIX 28/02/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar on Friday. Economic data includes German unemployment figures and French consumer spending and 4th quarter GDP numbers.

Of less influence on the day include prelim inflation numbers out of Italy and Germany.

From outside of the Eurozone, U.S inflation, trade data,  personal spending, and Chicago PMI numbers will also influence late in the day.

While the stats from the Eurozone and the U.S will influence, expect coronavirus news to remain the key driver.

Bargain hunters may be looking for an entry point but with so much uncertainty, any upside would likely remain limited.

In the futures markets, at the time of writing, the DAX was down by 269.5 points, while the Dow was up by 62 points.

Virus Fears Scuttle Market, EPS Growth In Question, Data Still Holding Up

Equities Fall In Fourth Day Of Viral Rout

The U.S. futures market is indicating another deep decline on Thursday. The move, sparked by a growing fear of the coronavirus, shaved another -1.0% and more off of the major indices. Today’s news includes word of the first community-spread case of coronavirus in the U.S. Health officials in California report the first case in which there is no known trail of contagion. The news raises the stakes in terms of economic impact, if the U.S. shuts down like China and other countries global GDP could contract sharply in 2020.

Elsewhere in the world, China continues to report new cases despite signs its containment efforts are starting to pay off. In South Korea, the second hardest nation, the number of new cases spiked to set a new daily record. The disease is not yet contained in that country. Officials in Japan are taking precautionary efforts and have closed all schools, the number of cases is growing in the EU as well.

Stocks On The Move

Tech is among the days hardest hit. The sector has above-average exposure to China and international markets making it particularly vulnerable to the disease. Apple and Intel are among the days leaders but are not the biggest losers by far. Apple and Intell are both down about -1.5% while chipmakers NVDA and AMD have shed -2.5% and -3.9% respectively.

Microsoft and Goldman Sachs are the latest to issue warnings about the viral impact. Microsoft says it will not meet its Q1 revenue targets because the supply chain is re-ramping slower than expected. Goldman Sachs analysts issued a warning that EPS growth for the entire S&P 500 could come in well below expectations for the year, as low as 0.0% but I think their estimate is generous.

Best Buy issued a Q4 earnings report this morning. The company reports better than expected revenue and earnings that were driven by an increase in comp-store sales. Shares were up sharply following the news but have since given up their gains. Virgin Galactic got a major catalyst from analysts this morning. A double-dose of downgrades from Morgan Stanley and Credit Suisse have shares down more than -13.0%.

The Data Is Good, No Indication Of Weakness

The number of new claims for unemployment insurance climbed 8,000 over the last week but remains low and trending near historic lows. The continuing claims and total claims figures, both indicators of conditions within the broad labor market, were relatively flat over the past week. New orders for durable goods fell -0.20% over the past month. The figure is better than expected and accompanied by a double-digit increase in core capital goods orders. On the GDP front, the final read for 4th quarter GDP is 2.1% and unchanged from the previous estimate.

European Equities: Another Slide on the Cards and the Prospects of a Global Pandemic Intensify

Economic Calendar:

Thursday, 27th February

Spanish HICP (YoY) (Feb) Prelim

Spanish HICP (YoY) (Feb) Prelim

Eurozone Consumer Confidence (Feb) Final

Friday, 28th February

French Consumer Spending (MoM) (Jan)

French GDP (QoQ) (Q4) 2nd Estimate

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Italian CPI (MoM) (Feb) Prelim

German CPI (MoM) (Feb) Prelim

The Majors

It was a mixed day for the European majors on Wednesday, with investors tiptoeing back into riskier assets. Support came in spite of the continued spread of the coronavirus, with a decision by EU member states to leave borders open delivering the support.

The continued concern over the spread of the virus was evidenced in travel and leisure stocks, however, that were the worst performers on the day.

The DAX30 saw its 5th consecutive day in the red, falling by 0.12%. Finding support was the CAC40, which eked out a 0.09% gain, while the EuroStoxx600 ending the day flat.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Wednesday. Economic data included jobseeker numbers out of France.

The numbers had a muted impact on the majors, however, in spite of total job seekers falling from 3,292.9k to 3,264.8k.

Concerns over the economic outlook continue to mute the effect of historical data that have yet to reflect the impact of the coronavirus.

Out of the U.S, January’s new home sales also had a muted impact on the majors late in the European session.

A bullish start to the day across the U.S majors did provide support, however…

The Market Movers

For the DAX: autos were amongst the top performers on Wednesday as investors went bargain hunting. BMW and Daimler led the way with gains of 1.26% and 1.05% respectively. Continental and Volkswagen saw more modest gains of 0.94% and 0.24% respectively.

It was a mixed day for the banks, however, with Commerzbank falling by 0.35%, while Deutsche Bank rose by 1.38%.

Deutsche Lufthansa was the worst performer on the DAX30, falling by 1.99%.

From the CAC, it was another bearish day for the banks. BNP Paribas fell by 1.00%, with Credit Agricole and Soc Gen declining by 1.14% and by 1.01% respectively.

The auto sector found support, however, with Renault and Peugeot ending the day up by 1.22% and 4.75% respectively.

Air France-KLM continued to struggle, however, with a 0.87% loss on the day.

On the VIX Index

The VIX saw red for the 1st time in 5-days, with a 1.04% loss. Following an 11.27% gain on Tuesday, the VIX ended the day at 27.6.

While the U.S equity markets had found support through the early part of the day, news updates on the coronavirus led to a late reversal, leaving the S&P500 down by 0.38% on the day.

The reversal was not enough to drive the VIX into positive territory, however, though the downside for the VIX may be temporary…

VIX 27/02/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar on Thursday. Economic data includes prelim February inflation figures out of Spain and finalized Eurozone consumer confidence numbers.

From the U.S, durable goods orders and 2nd estimate GDP numbers for the 4th quarter also provided direction.

Expect the Eurozone consumer confidence and numbers from the U.S to have the greatest influence from the calendar.

It will ultimately boil down to news updates and the later coronavirus numbers…

In the futures markets, at the time of writing, the DAX was down by 275.5 points, with the Dow down by 218 points.

Equities Attempt Rebound, Coronavirus Spreading, 2020 Growth In Question

The U.S. Futures Edge Higher

The U.S. futures are edging higher in early Wednesday trading following two days of massive declines. The broad market made its biggest drop in over four years over the course of Monday and Tuesday. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all looking at opening gains in the range of 0.10% to 0.15%. Although early action looks bullish, traders are warned not to read too much into the move. The Coronavirus is still spreading and its impact on global economic activity only now being felt.

China reports an additional 406 cases in the overnight session with 52 more dead. South Korea says it has 169 new cases and a rising death toll as does Italy. France now reports its first case proving the virus can spread despite the best efforts of health officials. In the U.S. officials report over 50 cases, they are prepping the public for an epidemic the only questions are when it will start and how long it will last. Regardless, the economic impact of this event will be wide-ranging and long-lasting.

Stocks On The Move

The tech sector is trying to move higher in early trading despite its entering correction territory. Now down 10% from recent highs the sector is on the verge of a full-blown bear market. Shares of Apple are among the leaders, down -12% in the last two days, but up about 0.4% in early action.

Shares of Office Depot are among today’s hottest issues. The company reported better than expected results and positive guidance that lifted shares 5.0%. Shares of TJX, parent of the TJMaxx chains of apparel stores, are up more than 6.15% after it reported better than expected earnings. The company says comps rose 6.0% sparking a similar rise in share prices.

Fast-food retailers Papa John’s and Wendy’s are both moving lower. Both companies reported better than expected results due to strength in the U.S. consumer. the downside is outlook failed to impress and that has investors second-guessing their positions.

Volatility Is On The Rise

The VIX, a so-called “fear gauge”, spiked over the last two days. The index, a measure of options prices relative to the S&P 500, has reached levels above 25 and is fast approaching a two-year high. The index shows a high degree of demand for options, protection against a market downturn, and that spells lower prices for the S&P 500.

On the economic front, New Home Sales are due out later in the session. Sales are expected to rise from the previous month and may top estimates. Warmer than expected weather has had a positive impact on other housing data.

 

European Equities: Covid-19 News Updates and ECB President Lagarde In Focus

Economic Calendar:

Wednesday, 26th February

France Jobseekers Total

Thursday, 27th February

Spanish HICP (YoY) (Feb) Prelim

Spanish HICP (YoY) (Feb) Prelim

Eurozone Consumer Confidence (Feb) Final

Friday, 28th February

French Consumer Spending (MoM) (Jan)

French GDP (QoQ) (Q4) 2nd Estimate

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Italian CPI (MoM) (Feb) Prelim

German CPI (MoM) (Feb) Prelim

The Majors

It was another bearish day for the European majors on Tuesday, with market fear over the spread of the coronavirus doing the damage once more.

The CAC40 led the way, falling by 1.94%, with the DAX30 and EuroStoxx600 ending the day down by 1.88% and by 1.76% respectively.

Economic data continued to play second fiddle on the day as news of a further spread of the coronavirus raised the prospects of a global pandemic.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Tuesday. Economic data included 2nd estimate GDP numbers for the 4th quarter out of Germany.

According to Destatis,

  • The German economy stalled in the 4th quarter, which was in line with 1st estimate numbers.

Compared with the previous quarter,

  • The growth of domestic final consumption expenditure slowed markedly.
  • Household final consumption expenditure stagnated in the 4th
  • General government final consumption expenditure rose by just 0.3%.
  • It was a mixed bag for fixed capital formation.
  • While gross fixed capital formation in construction increased by 0.6%, capital formation in machinery and equipment slid by 2%. Capital formation in other fixed assets was up by 1.1%.
  • Trade weighed on the economy in the 4th quarter, with exports down 0.2%, while imports of goods and services rose by 1.3%. It was the exports of goods, which fell by 0.4% that offset a rise in the exports of services (+0.4%).

Year-on-year, the economy grew by 0.3%, which was also in line with 1st estimates.

From the U.S, consumer confidence didn’t help, with the CB Consumer Confidence Index rising from 130.4 to 130.7. Economists had forecast an increase to 132.4.

The Market Movers

For the DAX: it was a bearish day for the auto sector on Tuesday. Continental led the way tumbling by 4.32%, with Volkswagen down by 2.25%. BMW and Daimler saw more modest losses of 1.44% and 1.42% respectively.

It was also a bearish day for the banks. Commerzbank slid by 5.84%, with Deutsche Bank down by 3.12%.

Deutsche Lufthansa also saw more red, sliding by 3.79% off the back of Monday’s 7.80% tumble.

From the CAC, it was a particularly bearish day for the banks. BNP Paribas slid by 4.88%, with Credit Agricole and Soc Gen falling by 3.62% and by 3.64% respectively.

The auto sector also continued to struggle. Renault fell by 2.87, with Peugeot ending the day down by 0.67%.

Air France-KLM fell by 3.28% following on from an 8.78% slide from Monday.

On the VIX Index

The VIX rose by 11.27% on Tuesday to market a 4th consecutive day in the green. Following on from a 46.55% surge on Monday, the VIX ended the day at 27.9.

A particularly bearish day drove the VIX to 30.0 levels for the first time since December 2018.

Market reaction to the continued spread of the coronavirus weighed heavily on the global equity markets, with the S&P500 sliding by 3.03%.

VIX 26/02/20 Daily Chart

The Day Ahead

It’s another relatively quiet day ahead on the Eurozone economic calendar on Wednesday. Economic data includes jobseeker totals from France.

Barring particularly dire numbers, the majors are unlikely to respond to the numbers later this morning.

With stats from the U.S limited to new home sales figures, market sentiment towards the global economic outlook will likely limit any upside on the day.

On the monetary policy front, ECB President Lagarde is scheduled to speak later in the day. Any monetary policy talk will influence, with the ECB likely to have material concerns over the spread of the coronavirus. The real question is what the ECB has to offer in terms of support. Certain members of the ECB will likely be reluctant to favor any further easing…

In the futures markets, at the time of writing, the DAX was down by 150.5 points, while the Dow was up by 57 points.

S&P 500 Rebounds, A Correction Is Coming

Equities Up In Early Trading

The U.S. futures are trading higher in the pre-market session although earlier gains have been muted. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all indicated up about 0.15%. The rebound comes a day after the broad market shed more than -3.0% in one of the deepest sell-offs of the last three years. Although the market tends to close higher following sell-offs of this type, traders are warned this correction is not over. Monday’s decline is only the first wave of selling now that the market accepts the coronavirus will hurt global economic activity this year.

The virus is now spreading in areas outside of China. South Korea reports more than 800 infected while Italy and Iran report 7 and 12 deaths each. The very real risk is that global GDP growth will fall below 0% for the first quarter and throw off estimates for the entire year. There have already been a number of downgrades from key S&P 500 companies, expect this trend to accelerate the longer the virus threat persists. South Carolina’s port system is reporting a sharp drop in deliveries that will hurt the state’s revenue this year. Add in the impact to the business supply chain and the threat of economic spillover becomes very real.

Stocks Making Headlines

United Airlines and MasterCard are the latest to issue warnings due to the virus. Both companies say the economic impact will be a drag on full-year revenue. Although business fundamentals are sound, a slowdown in cross-border travel, consumer and business spending is in process. United Airlines is down about -0.40% while MasterCard fell a more robust -2.0%. Chipmaker Micron is also moving lower, down about -1.0%, after it received a downgrade to underperform.

Home Depot is moving higher in early trading. The home improvement company beat on the top and bottom lines. The company CEO says investments in the company’s future are paying off. Shares are up 3.0%. Shares of Moderna are also on the move, up more than 15%, after the company shipped a coronavirus vaccine for Phase 1 trial. Moderna uses RNA technology to force human bodies to create their own medicines.

Economic Data Is Sparse

Today’s economic calendar is sparse. The only major release for U.S. markets is the Consumer Confidence figures due out later today. With the coronavirus weighing on global outlook this data will be more important than ever. The consumer has long been a driver of the U.S. economy, if cracks begin to appear the market correction could gain momentum.

European Equities: Futures Point to a Positive Open as Bargain Hunters Return

Economic Calendar:

Tuesday, 27th February

German GDP (YoY) (Q4) 2nd Estimate

German GDP (QoQ) (Q4) 2nd Estimate

Wednesday, 26th February

France Jobseekers Total

Thursday, 27th February

Spanish HICP (YoY) (Feb) Prelim

Spanish HICP (YoY) (Feb) Prelim

Eurozone Consumer Confidence (Feb) Final

Friday, 28th February

French Consumer Spending (MoM) (Jan)

French GDP (QoQ) (Q4) 2nd Estimate

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Italian CPI (MoM) (Feb) Prelim

German CPI (MoM) (Feb) Prelim

The Majors

It was a particularly bearish start to the week for the European majors, with market fear over the spread of the coronavirus doing the damage.

The DAX30 led the way, sliding by 4.01%, with the CAC40 and EuroStoxx600 falling by 3.94% and by 3.79% respectively.

Economic data took a back seat on the day as a spike in cases in South Korea and Italy raised the possibility of a global pandemic.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Monday. Economic data included Germany’s IFO Business Climate Index figures for February.

According to the February survey,

  • The IFO Business Climate Index rose from 96.0 to 96.1 in February.
  • While sentiment towards the current situation deteriorated, companies were less pessimistic about the next 6-months.
  • The IFO Current Assessment sub-index fell from 99.2 to 98.9, while the Business Expectations sub-index rose from 92.9 to 93.4.

The slight uptick had little to no impact on the DAX30 and risk appetite in general, however.

There were also no material stats from the U.S to influence later in the day.

The Market Movers

For the DAX: it was a particularly bearish day for the auto sector on Monday. Daimler led the way tumbling by 6.43%, with Volkswagen down by 5.89%. BMW and Continental saw marginally more modest losses of 5.20% and 4.15% respectively.

It was also a bearish day for the banks. Commerzbank slid by 6.04%, with Deutsche Bank down by 5.74%.

Deutsche Lufthansa also saw red, tumbling by 7.80%, with the spread of the coronavirus particularly bad news for the airline industry.

From the CAC, it was a bearish day for the banks. BNP Paribas slid by 3.80%, with Credit Agricole and Soc Gen falling by 3.35% and by 3.64% respectively.

The auto sector also struggled at the start of the week. Renault slid by 6.63, with Peugeot ending the day down by 6.97%.

Air France-KLM took yet another hit on Monday, sliding by 8.78%.

On the VIX Index

The VIX surged by 46.55% on Monday. Following on from a 9.77% gain on Friday, the VIX ended the day at 25.0.

A particularly bearish day drove the VIX to its highest level since 3rd January of last year.

Market reaction to the spread of the coronavirus weighed heavily on the global equity markets, with the S&P500 sliding by 3.35%.

VIX 25/02/20 Daily Chart

The Day Ahead

It’s another relatively quiet day ahead on the Eurozone economic calendar on Tuesday. Economic data includes Germany’s 2nd estimate GDP numbers for the 4th quarter.

Expect any revision from 1st estimates to influence early in the day.

From the U.S, consumer confidence figures will also provide direction, with the futures pointing to a positive open as investors go bargain hunting.

In the futures markets, at the time of writing, the DAX was up by 70.5 points, with the Dow up by 168 points.

Equities Plunge, Coronavirus Spreads, A Major Correction Has Begun

The U.S. Futures Are Down Sharply In Early Trading

The U.S. futures market is down sharply in early trading. Market participants have begun to understand the scale of disruption the spreading coronavirus will have on economic activity. The Dow Jones Industrial Average, S&P 500 and NASDAQ Composite are all down -2.5% to -2.75% in early trading.

The cause, news the coronavirus is not only spreading but gaining traction in areas outside of China. South Korea says the number of cases there has jumped to over 750. South Korea’s response was to raise its safety warning to the highest level. Elsewhere, the number of infected is growing in Italy and Iran. China says the number of deaths has topped 2,500 within its own borders. The last estimates for Q1 growth were near 0.0% due to viral impact but the risk is much greater. First-quarter growth is likely to come in below zero and the rebound expected later in the year is highly questionable.

Stocks On The Move

Oil and gold are among today’s biggest movers. Oil prices fell nearly -4.0% because spreading economic impact means declining demand or oil. Today’s move confirms resistance at a key technical level and may point the way to deeper declines later this quarter. Gold prices shot up nearly 2.0% and are headed up to retest the all-time high. Traders around the world are flocking into safe havens and are likely to drive the precious metal to new highs very soon.

Airlines, gaming, and travel stocks are leading equities lower. Shares of Las Vegas Sands, Wynn Resorts, and MGM are down -3 to -7.0%. Delta and American Airlines are both down about -5.25%. Chipmakers are not immune, Nvidia and Intel are both down as well, Nvidia leads with a loss of -6.0%. Apple and its supply chain are also being hit hard with losses in the range of -4.0% to -6.0%.

The U.S. Economy Is Still Strong

Words of encouragement from Warren Buffet did not assuage the market’s anxiety. He says the U.S. economy is still on fine footing and the data supports that view. Today’s economic calendar includes the Chicago National Activity Index which rose in January. The index came in at -0.25 from last month’s -0.51 showing an increase in overall activity and activity in line with long-running trends. Three of the four sub-indices improved but only one turned positive, the new orders. Traders should focus on new orders because it is a leading indicator of future activity.

European Equities: Futures Point to a Tough Day Ahead for the Bulls

Economic Calendar:

Monday, 26th February

German IFO Business Climate Index (Feb)

Tuesday, 27th February

German GDP (YoY) (Q4) 2nd Estimate

German GDP (QoQ) (Q4) 2nd Estimate

Wednesday, 26th February

France Jobseekers Total

Thursday, 27th February

Spanish HICP (YoY) (Feb) Prelim

Spanish HICP (YoY) (Feb) Prelim

Eurozone Consumer Confidence (Feb) Final

Friday, 28th February

French Consumer Spending (MoM) (Jan)

French GDP (QoQ) (Q4) 2nd Estimate

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Italian CPI (MoM) (Feb) Prelim

German CPI (MoM) (Feb) Prelim

The Majors

It was a bearish day for the European majors on Friday, with the DAX30 sliding by 0.62% to lead the way down. The CAC40 and EuroStoxx600 saw more modest losses of 0.54% and 0.49% respectively.

Risk aversion stemming from a marked increase in the number of new coronavirus cases sent the majors in the red.

While numbers out of China continued to reflect a slowing in the number of new cases and deaths, it was South Korea that spooked the markets.

With the number of new cases and deaths spiking, there were also likely doubts over the accuracy of the numbers out of China.

The downside was relatively minor, however, with better than anticipated private sector PMI numbers for February limiting the damage.

The Stats

It was a busy day on the Eurozone economic calendar on Friday. Economic data included private sector PMI numbers out of France, Germany, and the Eurozone.

According to the prelim numbers:

The French Manufacturing PMI fell from 51.1 to 49.7, while the services PMI jumped from 51.0 to 52.6.

It was also mixed out of Germany, with the manufacturing PMI rising from 45.3 to 47.8, while the services PMI fell from 54.2 to 53.3.

For the Eurozone, the Manufacturing PMI rose from 47.9 to 49.1, with the Services PMI rising from 52.5 to 52.8.

The Eurozone’s Composite PMI increased from 51.3 to 51.6.

According to the Eurozone PMI survey,

  • The Eurozone’s Composite Output Index hit a 6-month high, with the Manufacturing Output Index hitting an 8-month high.
  • Supported by better numbers out of France and Germany, the Manufacturing PMI hit a 12-month high in February.
  • In spite of the rise in the Manufacturing PMI, new orders fell for a 17th consecutive month. The decline was the smallest in 15-months, however. Domestic demand offset much of a more marked decline in demand from overseas.
  • Overall, however, new orders increased at a rate equal to January’s 7-month high.

From the U.S, PMI numbers were particularly disappointing, however, adding to the doom and gloom that ultimately led to a bounce-back in the EUR.

The Market Movers

For the DAX: it was a bearish day for the auto sector on Friday. Daimler led the way sliding by 3.03%, with Volkswagen down by 2.46%. BMW and Continental saw more modest losses of 1.51% and 1.38% respectively.

It was also a bearish day for the banks. Commerzbank fell by 3.41%, with Deutsche Bank down by 4.46%.

Deutsche Lufthansa also saw red, falling by 1.86%, as the markets continued to digest Air France-KLM’s earnings results and forward guidance.

From the CAC, it was a relatively bearish day for the banks. BNP Paribas and Credit Agricole both fell by 0.08%, with Soc Gen falling by 0.48%.

The auto sector also struggled at the end of the week. Renault slid by 3.00%, with Peugeot ending the day down by 1.49%.

Air France-KLM took another hit on Friday, sliding by 3.30%, the loss coming off the back of a 3.49% tumble on Thursday.

On the VIX Index

The VIX rose by 9.77% on Friday. Following on from an 8.21% gain on Thursday, the VIX ended the day at 17.1.

Bearish sentiment through the European and U.S sessions delivered the upside on Friday as the markets digested the latest coronavirus updates.

Disappointing private sector PMI numbers out of the U.S added to the negative sentiment at the end of the week.

The S&P500 fell by 1.05% on the day, following from a pullback on Thursday that had reversed gains from earlier on the week.

VIX 24/02/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar on Monday. Economic data includes German IFO Business Climate index numbers for February.

Forecasts are negative for the majors, with the IFO Business Climate Index forecasted to fall from 95.9 to 95.1.

While we can expect influence from the numbers, updates from China and beyond on the coronavirus will remain the key driver near-term.

In the futures markets, at the time of writing, the DAX was down by 235.5 points, with the Dow down by 408 points.

The Week Ahead – Economic Data and COVID-19 Updates to Drive the Majors

On the Macro

It’s a relatively busy week ahead on the economic calendar, with 55 stats to monitor in the week ending 28th February. In the previous week, just 64 stats had been in focus.

For the Dollar:

It’s a busy week ahead for the Dollar.

The markets will have to wait until Tuesday, however, to assess the impact of COVID-19 on the U.S consumer, with the all-important CB Consumer Confidence figures for February due out.

FED Chair Powell had talked of economic resilience and with the U.S equity markets close to record highs, there’s little reason to expect any deterioration. Forecasts are Dollar positive.

The focus will then shift to January durable goods orders and 4th quarter GDP numbers due out on Thursday. Barring revision from 1st estimates, we expect the durable goods orders to have the greatest influence.

COVID-19 is expected to have a material impact on key economies. The markets will want to ensure that the U.S economy remains unscathed… After all, there remains a distinct difference between survey-based and actual data.

At the end of the week, January inflation and personal spending figures are due out along with the Chicago PMI for February.

Barring material deviation from prelims, we would expect finalized consumer sentiment numbers to be brushed aside.

Over the week, housing sector figures will also draw attention mid-week, with new home and pending home sales figures due out.

The Dollar Spot Index ended the week up by 0.21% to 99.337.

For the EUR:

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

In the 1st half of the week, Germany is on focus once more. February’s IFO Business Climate Index numbers are due out on Monday, ahead of 2nd estimate GDP numbers on Tuesday.

While the IFO numbers will be the key driver, any revisions to the GDP numbers will have a greater impact…

In the 2nd half of the week, French consumer spending and GDP numbers are due out along with German unemployment figures on Friday.

Expect Germany’s unemployment numbers to have the greatest influence on the day.

Through the 2nd half of the week, prelim inflation figures for February will likely have a muted impact on the EUR.

The EUR/USD ended the week up down by 0.15% to $1.0847.

For the Pound:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats scheduled for release, which leaves the hand firmly in the hands of Brexit.

On 25th February, the EU is due to deliver its starting terms for trade negotiations that begin next week. France has already talked of a tough time ahead and Britain has been clear that there can be no strings attached.

Expect chatter on trade to be the key driver in the week. Economic data out of the UK impressed last week. That should remove the near-term focus on the BoE and monetary policy.

The GBP/USD ended the week down by 0.64% to $1.2964.

For the Loonie:

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

In a quiet 1st half of the week, however, economic data is limited to December’s wholesale sales figures due out on Monday. While the numbers will provide direction, the focus will be on GDP numbers due out on Friday.

Any weak numbers and expect the chances of a rate cut to rise, which should send the Loonie back to C$1.33 levels.

Outside of the stats, market risk sentiment will also be a key driver.

The Loonie ended the week up by 0.20% to C$1.3225 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively quiet week ahead.

Key stats include 4th quarter construction work done and new CAPEX figures due out on Wednesday and Thursday.

While housing sector conditions have improved and are key to supporting consumer spending, CAPEX numbers will likely have a greater influence.

Business confidence has failed to bounce back at the turn of the year. Weak investment numbers will weigh on Thursday.

On Friday, private sector credit figures are unlikely to have a material impact on the Aussie.

Outside of the numbers, expect updates on COVID-19 to also provide direction.

The PBoC and Chinese Government have delivered support and will likely deliver more if the need arises. Will it be enough to support the RBA’s view that the impact of the virus will be short-lived?

The Aussie Dollar ended the week down by 1.30% to $0.6627.

For the Kiwi Dollar:

It’s a relatively busy week ahead on the economic data front. At the start of the week, 4th quarter retail sales figures will influence on Monday. The attention will then shift to January trade data and business confidence figures due out on Thursday.

Expect the retail sales and trade figures to have a greater impact, however.

On the trade front, there will be particular interest in export figures to China that are likely to have seen a sizeable decline.

In December, exports to China had accounted for 28% of NZ exports…

The Kiwi Dollar ended the week down by 1.38% to $0.6349.

For the Japanese Yen:

It’s a relatively busy week on the economic data. The markets will need to wait until Friday, however, for key stats.

Expect prelim January industrial production and retail sales figures to have the greatest influence.

Following some particularly dire numbers out of Japan last week, more doom and gloom should test the BoJ’s resolve…

Outside of the numbers, updates from China and the region on the coronavirus will also provide direction.  Expect any rise in cases within the region to weigh on the Yen.

The Japanese Yen ended the week down by 1.67% to ¥111.61 against the U.S Dollar.

Out of China

It’s a quiet week on the economic data front. Key stats are limited to February private sector PMI numbers that are due out on Saturday.

Outside of the numbers, chatter from Beijing and COVID-19 updates will continue to be the main area of focus.

The Chinese Yuan fell by 0.58% to CNY7.0271 against the U.S Dollar in the week.

Geo-Politics

Trade Wars: It’s simmering in the background. U.S President Trump may be quietly concerned over the impact of the coronavirus on his trade win against China… China is unlikely to meet any of the terms any time soon. With the Presidential Election campaign beginning to heat up, U.S farmers may not be getting the demand that Trump had promised…

Looking across to the EU, the Airbus v Boeing battle could send the EU into a trade dispute with the U.S. While hopes are of a resolution, progress on talks will need monitoring…

UK Politics: Terms of the EU’s starting point ahead of trade negotiations are due to be delivered on 25th February.

Expect plenty of reaction from Parliament and the markets from the terms that are likely to point to that tough time ahead…

Corporate Earnings

It’s a quieter week ahead on the corporate earnings calendar, as earnings season begins to wind down. Marquee names releasing earnings include:

From the U.S: Macy’s Inc. (Tue), JC Penny Co. Inc. (Thurs),

From of the UK: Standard Chartered PLC (Mon), Rio Tinto (Wed), British American Tobacco (Thurs), and International Consolidated Airlines Group SA (Thurs)

The Weekly Wrap – U.S PMIs and the Coronavirus Drive Risk Aversion

The Stats

It was a busy week on the economic calendar, in the week ending 21st February.

A total of 72 stats were monitored, following the 46 stats in the week prior.

Of the 72 stats, 39 came in ahead forecasts, with 24 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 27 of the stats reflected an upward trend from previous figures. Of the remaining 45, 36 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bullish week, with risk aversion and positive economic data driving demand for the Dollar. That was the story until Friday when the Dollar hit speed bumps as private sector activity waned.

The Dollar Spot Index rose by 0.21% to 99.337, in the week.

Out of the U.S

In the 1st half of the week, key stats in the week included manufacturing numbers out of NY State and January wholesale inflation figures.

Any concerns over the impact of the coronavirus on U.S manufacturing sector activity would have eased. The Index jumped from 4.80 to 12.90 in February.

Wholesale inflationary pressures were also on the rise. Core producer prices rose by 0.5% in January, following a 0.1% rise in December. Producer prices also rose by 0.5%, following a 0.1% increase in December.

The focus then shifted to Philly FED Manufacturing and U.S prelim private sector PMI numbers for February.

On Thursday, the Philly FED Manufacturing Index jumped from 17.0 to 36.7 in February. Economists had forecast a fall to 10.0.

Private sector PMIs failed to impress on Friday, however.

The all-important U.S service sector contracted in February. According to prelim February figures, the Services PMI fell from 53.4 to a 76-month low 49.4.

Things were not much better for the manufacturing sector, with the PMI falling from 51.9 to 6-month low 50.8. As a result, the U.S Composite Output Index slumped to a 76-month low 49.6.

Friday’s numbers will have created some uncertainty over the U.S economic outlook that struggled in February. The ISM numbers will be key… Did the FED Chair get it that wrong?

On the monetary policy front, the FOMC meeting minutes from Wednesday had limited impact. FED Chair Powell’s testimony from last week was considered more current.

In the equity markets, the Dow fell by 1.38%, with the S&P500 and NASDAQ down by 1.25% and by 1.59% respectively.

Out of the UK

It was a busy week on the economic calendar.

In the early part of the week, employment and inflation figures provided direction.

In December, average wages plus bonuses rose by 2.9%, easing from 3.2% in November. While wage growth slowed, employment continued to rise at a solid clip in the final quarter. Employment rose by 180k in December, following on from a 208k rise in the 3-months to November.

A 5.5k rise in claimant counts in January suggests that the unemployment rate will hold steady at 3.8%.

On Wednesday, inflationary pressures picked up at the start of the year, with the annual rate of inflation accelerating to 1.8%.

While the stats were skewed to the positive in the 1st half of the week it was not enough to support the Pound, however.

In the 2nd half of the week, retail sales and private sector PMI numbers also impressed.

Core retail sales rose by 1.6% in January, with retail sales rising by 0.9%, the pickup coming in spite of rising consumer prices.

Wrapping things up on Friday, private sector PMI numbers delivered support to the Pound.

The Manufacturing PMI rose from 50.0 to 51.9, while the Services PMI fell from 53.9 to 53.3, leaving the Composite unchanged at 53.3.

Upbeat stats in the week further eased any expectation of a BoE rate cut near-term, leading the Pound back to $1.29 levels.

Outside of the numbers, Brexit chatter was also in focus as France looked to send a strong message of intent across the Channel.

Britain’s chief negotiator David Frost delivered Britain’s goals on Monday, while also stating that signing up to EU standards would defeat the purpose of Brexit. The comments came in response to warnings from the French government as the EU and Britain prepare to begin trade negotiations…

France’s warnings and Britain’s stance suggest a tough time ahead, which left the Pound in the red early in the week.

In the week, the Pound fell by 0.64% to $1.2964, with the FTSE100 ending the week down by 0.07%.

Out of the Eurozone

It was a quiet start to the week economic data front, with economic data limited to economic sentiment figures out of Germany and the Eurozone.

The numbers were skewed to the negative, with investor concerns over the effects of the coronavirus weighing.

The Eurozone’s Economic Sentiment Index fell from 25.6 to 10.4, with the German Sentiment Index falling from 26.7 to 8.7.

In the 2nd half of the week, however, the stats were skewed to the positive.

Consumer confidence seemed unaffected by the spread of the coronavirus. Germany’s GfK Consumer Climate Index fell by 9.9 to 9.8, with the Eurozone’s consumer confidence rising from -8.1 to -6.6.

At the end of the week, prelim private sector PMI numbers were also skewed to the positive.

Manufacturing sector activity picked up in February, with the Eurozone’s PMI hitting a 12-month high.

While the Eurozone’s Composite rose from 51.3 to 51.6, it wasn’t all smooth sailing, with new orders continuing to weigh.

Finalized inflation figures from member states and the ECB monetary policy meeting minutes had a muted impact on the EUR.

For the week, the EUR rose by 0.15% to $1.0847, with a 0.57% rally on Friday reversing losses from the week.

For the European major indexes, it was a bearish week. The DAX30 fell by 1.20% to lead the way, with the CAC40 and the EuroStoxx600 ending the week down by 0.65% and by 0.61% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week, the Aussie Dollar fell by 1.30% to $0.6627, with the Kiwi Dollar down by 1.38% to $0.6349.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter wage growth numbers on Wednesday and January employment figures on Friday.

It was a mixed set of numbers, however. Wage growth continued to grow at a tepid pace of 0.5%, with the unemployment rate rising from 5.1% to 5.3%.

There was a 46.2k jump in full-time employment to limit the negative sentiment towards the Aussie Dollar on the day.

On the monetary policy front, the RBA Meeting Minutes added further pressure on the Aussie Dollar on Tuesday.

The rate statement released on 4th February had shown little concern over the likely effects of the coronavirus on the economy.

The minutes, however, sent a different message, with members also considering a rate cut at the meeting. All of this was in spite of the RBA expecting economic activity to pick up in the 2nd half of the year.

With the RBA minutes on the dovish side, risk aversion in the week added pressure on the Aussie Dollar. While numbers out of China showed the spread of the coronavirus slowing, cases elsewhere caused alarm.

For the Kiwi Dollar

It was a particularly quiet start to the week on the economic colander, with no material stats to provide direction.

A likely extended period of soft demand for goods from New Zealand weighed on the Kiwi Dollar in the week.

China’s measures to continue to contain the spread of COVID-19 is expected to weigh on demand for overseas goods.

In the 2nd half of the week, 4th quarter wholesale inflation figures on Thursday did little to support the Kiwi. Input price inflation eased from 0.9% to 0.1% in the 4th quarter. Economists had forecast an easing to 0.4%.

For the Loonie

It was a busy week on the economic calendar. Key stats included January inflation figures on Wednesday and December retail sales figures on Friday.

The numbers were mixed in the week, with a pickup in the annual rate of core inflation providing support mid-week.

Retail sales figures did little to impress, however, with retail sales stalling in December.

While the stats did provide direction, crude oil supply disruption provided support.

The Loonie rose by 0.20% to end the week at C$1.3225 against the Greenback.

For the Japanese Yen

It was a busy week on the data front.

At the start of the week, 4th quarter GDP numbers and finalized industrial production figures caught the markets off-guard on Monday.

In the 4th quarter, the economy shrank by 1.6%. Compared with the 4th quarter of 2018, the economy slumped by 6.3%.

Economic woes were attributed to the sales tax hike, typhoons, and the U.S – China trade war.

Of concern for the BoJ will be the fact that the contraction came before COVID-19 began to spread…

On Wednesday, trade figures were not much better, with Japan’s trade deficit widening from ¥154.6bn to ¥1,312.6bn.

While exports fell by 2.6% year-on-year, the numbers were not as bad as had been anticipated. February figures will give the markets a better idea of what impact the coronavirus has had on the Japanese economy.

At the end of the week, it was weak stats once more, however.

Japan’s Manufacturing PMI fell from 48.8 to 47.6, with the Services Sector PMI falling from 51.0 to 46.7.

Market jitters over the spread of the coronavirus weighed heavily on the Yen. Rising cases in Japan and the region led to the markets seeking safety elsewhere.

Economic data out of Japan suggested that there is more trouble ahead for the Japanese economy. Uncertainty over the coronavirus spread across the region was also a key driver to the Yen’s demise.

The Japanese Yen fell by 1.67% to end the week at ¥111.61 against the U.S Dollar.

Out of China

Economic data was on the lighter side in the week, with key stats limited to new loans for January.

New loans surged by CNY3,340.0bn in January, following a CNY1,140.0bn rise in December.

Outside of the numbers, the PBoC cut loan prime rates on Thursday, though not by the extent that the markets had anticipated.

The PBoC cut 1-year loan prime rates from 4.15% to 4.05%, with the 5-year LPR cut from 4.8% to 4.75%.

While the more modest cuts weighed on the markets on Thursday, updates on the coronavirus provided support. The number of cases in China was in decline in the week, with the number of deaths also falling.

Earlier in the week, fiscal and monetary policy support had given the Yuan a boost before a pullback to CNY7 levels against the Dollar.

The CSI300 rallied by 4.06%, while the Hang Seng slid by 1.82% in the week.

In the week ending 21st February, the Yuan fell by 0.58% to CNY7.0271 against the Greenback.

European Equities: A Week in Review – 22/02/20

The Majors

It was a bearish week for the European majors in the week ending 21st February, with the DAX30 falling by 1.20% to lead the way down.

The CAC40 and EuroStoxx600 saw more modest losses of 0.65% and 0.61% respectively.

Negative sentiment towards the anticipated impact of the coronavirus on corporate earnings and global trade pressured in the week.

At the start of the week, Apple issued a warning over demand for the 1st quarter that saw the majors hit reverse on Tuesday.

Mid-week, the majors managed to claw back their losses from Tuesday to move back into positive territory for the week.

Support had come from the Chinese government and the PBoC’s moves to mute the impact of the coronavirus on 1st quarter growth.

This was coupled with a downward trend on the number of people catching the virus, with the death toll also in decline.

A reversal came on Thursday, however, with earnings weighing. Air-France KLM delivered to a stark warning on Thursday, which hit risk appetite on the day.

At the end of the week, the majors were unable to shift away from the negative sentiment towards the coronavirus as new cases jumped globally.

Things could have been far worse had economic data from the Eurozone not been skewed to the positive in the week. The softer EUR had also provided some support earlier in the week before Friday’s rebound.

The Stats

It was a busy week on the Eurozone economic calendar.

On Tuesday, the ZEW Economic Sentiment figures for Germany and the Eurozone were in focus, which weighed on the majors.

Germany’s ZEW Economies Sentiment Index slid from 26.7 to 8.7 in February, with the Eurozone’s falling from 25.6 to 10.4. Concerns over the impact of the coronavirus on global trade contributed to the slide.

The focus then shifted to consumer confidence figures out of Germany on Thursday and prelim February private sector PMIs on Friday.

Germany’s GfK Consumer Climate Index fell from 9.9 to 9.8 for March, coming in ahead of a forecast of 9.6. There were no major concerns over the coronavirus, with sentiment towards the economic outlook on the rise.

The main event of the week, however, was the release of prelim private sector PMI numbers out of France, Germany, and the Eurozone.

According to the prelim numbers:

The French Manufacturing PMI fell from 51.1 to 49.7, while the services PMI jumped from 51.0 to 52.6.

It was also mixed out of Germany, with the manufacturing PMI rising from 45.3 to 47.8, while the services PMI fell from 54.2 to 53.3.

For the Eurozone, the Manufacturing PMI rose from 47.9 to 49.1, with the Services PMI rising from 52.5 to 52.8.

The Eurozone’s Composite PMI increased from 51.3 to 51.6.

According to the Eurozone PMI survey,

  • The Eurozone’s Composite Output Index hit a 6-month high, with the Manufacturing Output Index hitting an 8-month high.
  • Supported by better numbers out of France and Germany, the Eurozone Manufacturing PMI hit a 12-month high in February.
  • In spite of the rise in the Manufacturing PMI, new orders fell for a 17th consecutive month. The decline was the smallest in 15-months, however. Domestic demand offset much of a more marked decline in demand from overseas.
  • Overall, however, new orders increased at a rate equal to January’s 7-month high.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen led the way down, sliding by 2.63%. BMW and Daimler saw more modest losses of 1.88% and 1.55% respectively. Continental bucked the trend in the week, rising by 0.47%.

It was a particularly bearish week for the banking sector, however, with Deutsche Bank tumbling by 7.28%. Commerzbank fell by a more modest 1.36%.

From the CAC, it was also a bearish week for the banks. BNP Paribas fell by 0.86%, with Credit Agricole and Soc Gen sliding by 2.59% and by 2.08% respectively.

Things were not much better for the French auto sector. Renault tumbled by 8.17%, with Peugeot ending the week down by 1.19%.

The shift in risk appetite also weighed on airline stocks. Germany’s Lufthansa fell by 3.28%, with Air France-KLM down by 5.02%.

On the VIX Index

The VIX rallied by 24.85% in the week ending 21st February to deliver a 1st weekly gain in 3-weeks. Reversing an 11.57% fall from the previous week, the VIX fell by 11.57% to end the week at 17.1.

Economic data out of the U.S at the end of the week disappointed, with the all-important U.S service sector contracting for the 1st time since October 2013. According to prelim February figures, the Services PMI fell from 53.4 to a 76-month low 49.4.

Things were not much better for the manufacturing sector, with the PMI falling from 51.9 to 6-month low 50.8. As a result, the U.S Composite Output Index slumped to a 76-month low 49.6.

Dire numbers at the end of the week coupled with rising coronavirus cases across the world drove risk aversion on Friday. Two consecutive days in the green at the end of the week delivered the lion’s share of the gains.

VIX 22/02/20 Weekly Chart

The Week Ahead

It’s another busy week ahead on the Eurozone economic calendar. Through the 1st half of the week, Germany’s business sentiment and 2nd estimate GDP numbers are in focus.

Through the 2nd half of the week, the markets will need to wait until Friday for employment numbers out of Germany and consumer spending and 2nd quarter GDP numbers out of France.

We expect prelim February inflation figures out of Spain, France, Italy, and Germany to have a muted impact on the majors.

From elsewhere, consumer confidence numbers out of the U.S will influence on Tuesday. Durable goods and 2nd estimate GDP numbers out of the U.S on Thursday will also provide direction.

Outside of the numbers, expect updates from China and beyond on the spread of the coronavirus to remain the key driver.

Equities In Retreat, GDP Growth In Danger, Fed Downplays Rate-Cut Outlook

The U.S. Futures Are Moving Lower

The U.S. futures are indicating a mildly lower open on Friday. The move comes a day after U.S. equity markets experienced an unexpected and deep intraday pullback. The pullback, most likely caused by a growing fear of the coronavirus, countered a new all-time high in the broad market and threatens to spark a deeper correction. The number of deaths in China has risen in the last 24 hours and signs are emerging the virus is still spreading. China now reports outbreaks within its prison system while South Korea says its confirmed cases are spiking.

Traders are becoming more and more concerned about 1Q GDP and EPS growth. The consensus is the virus will hold GDP growth at 0.0% for the 1st quarter and that will assuredly have an impact on Q1 EPS growth. Looking at the Chinese data, sales of autos fell more than 92% in the first two weeks of February signaling the impact on economic activity could be quite severe. The good news is that, once the epidemic has passed, GDP and EPS growth are expected to rebound.

Wall Street Is Still Bullish On Domestic Equities

In corporate news, earnings and upgrades are the news of the day. On the earnings front, Deere & Co, First Solar, and Dropbox are the big movers of the day. Deere & Co reported better than expected top and bottom-line results that pleased investors. The news was accompanied by a favorable outlook for the U.S. farming market that has shares up 10.5% in premarket action. Shares of Dropbox are also moving higher, up 12.5%, after it reported better than expected results. The file-sharing company also raised guidance and initiated a share buyback program.

Shares of Chewy got a boost this morning when analysts at RBC upped their rating on the stock. According to them, Chewy has highly favorable risk-reward profile based on revenue and margin expansions. At the other end of the spectrum, shares of First Solar are moving lower following its weaker than expected report and unfavorable guidance. In other news, shares of Coca Cola are holding flat after the company warned Q1 EPS could be hurt as much as $0.02 per share due to the coronavirus outbreak.

Flash PMI And Existing Home Sales Due Out Late In The Morning

Flash PMI readings and Existing Home Sales data are due out later in the morning. The PMI, both manufacturing and services, are expected to hold steady if not advance from the last month. Readings on activity in NY and Philadelphia were both much hotter than expected earlier this week. On the housing front, existing home sales are expected to fall slightly from the previous month but remain above 5 million annualized units.

European Stocks Pressured by Coronavirus Fears; Euro Zone PMIs Show Better Growth

European shares slumped on Friday, as investors monitored the latest developments in the coronavirus outbreak. Traders generally followed the lead in Asia which was mostly lower across the board. Basic resources stocks lost the most, but all sectors on all major bourses are being pressured. The biggest concern for investors is the spreading of the coronavirus outside of China.

At 11:34 GMT, the U.K.’s FTSE 100 Index is trading 7416.93, down 19.71 or -0.27%. Germany’s DAX is at 13640.50, down 23.50 or -0.17% and France’s CAC is at 6043.11, down 19.19 or -0.32%.

Economic News

CNBC reported that leaders of the 27 EU member states failed to make any headway in budget talks on Thursday. The U.K.’s departure from the bloc last month is projected to leave a £55 billion ($71.3 billion) hole in the EU’s coffers over the next seven years.

Business activity in the Euro Zone accelerated more than expected this month, a business survey showed on Friday, in welcome news for policymakers at the European Central Bank who are battling to revive growth and chronically low inflation.

Euro Zone February Business Growth Better than Expected

IHS Markit’s Euro Zone Composite Flash Purchasing Manager’s Index (PMI), seen as a good gauge of economic health, rose to 51.6 in February from January’s final reading of 51.3, beating all forecasts in a Reuters poll which had a median prediction of 51.0. Anything above 50 indicates growth.

“The Euro Zone economy managed to pick up some momentum again in February despite many companies having been disrupted in various ways by the coronavirus, which caused supply problems,” said Chris Williamson, chief business economist at IHS Markit.

Demand remained relatively strong, suggesting there won’t be a deterioration next month. The new business index held at January’s seven-month high of 51.3.

Williamson said the survey was consistent with GDP growth of 0.2%, matching the projection in a Reuters poll published this week.

The headline index was buoyed by a rise in the PMI for the bloc’s dominant services industry to a forecast-beating 52.8 from 52.5.

With demand resilient, demonstrating some confidence, firms took on more workers, albeit at a slower rate than in January. The employment index dipped to 52.6 from 53.0.

While a manufacturing PMI held below the break-even mark, it continued its upwards march. It rose to 49.1 from 47.9, its highest level in a year and ahead of all forecasts in a Reuters poll.

An index measuring output, which feeds in to the composite PMI, rose to 48.4 from 48.0.

Most forward-looking indicators in the survey moved in the right direction, suggesting the manufacturing recovery was still on course and optimism remained elevated. The future output index only dipped to 57.9 from January’s 17-month high of 59.8.

“The expansion is being led by welcome resilience in the service sector but manufacturing is also showing encouraging signs of pulling out of the downturn that has plagued producers for over a year,” Williamson said.

European Equities: Private Sector PMIs to Hit the Majors as Risk Aversion sinks the Futures

Economic Calendar:

Friday, 21st February

French Manufacturing PMI (Feb) Prelim

French Services PMI (Feb) Prelim

German Manufacturing PMI (Feb) Prelim

German Services PMI (Feb) Prelim

Eurozone Manufacturing PMI (Feb Prelim)

Eurozone Markit Composite PMI (Feb) Prelim

Eurozone Services PMI (Feb) Prelim

Italian CPI (MoM) (Jan) Final

Eurozone Core CPI (YoY) (Jan) Final

Eurozone CPI (MoM) (Jan) Final

Eurozone CPI (YoY) (Jan) Final

The Majors

It was a bearish day for the European majors on Thursday, with the DAX30 sliding by 0.91% to lead the way down. The CAC40 and EuroStoxx600 weren’t far behind, with losses of 0.80% and 0.86% respectively.

A slowdown in the spread of the coronavirus, according to Wednesday numbers, failed to provide support on the day.

On the day, earnings weighed on the European majors, with a number of marquee listed companies announcing disappointing results.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Thursday. Economic data included March consumer confidence figures out of Germany.

Finalized January inflation figures out of France and January wholesale inflation figures out of Germany had a muted impact on the day.

According to the GfK, the Consumer Climate Index fell from 9.9 to 9.8 in March. Economists had forecast a fall to 9.6.

  • While sentiment towards economic expectations improved, income expectations and propensity to buy declined.
  • It was the 2nd month in a row that economic expectations saw improvement, with the uptick coming in spite of the coronavirus spread.

From the U.S a surge in manufacturing sector activity in Philly failed to reverse the effects of weak corporate earnings. The Philly FED Manufacturing Index rose from 17.0 to 36.7. Economists had forecast a fall to 12.0.

The Market Movers

For the DAX: it was a bullish day for the auto sector on Thursday. Daimler led the way rallying by 2.97%, with Continental rising by 1.42%. BMW and Volkswagen saw more modest gains of 0.43% and 0.01% respectively.

It was also a bullish day for the banks. Commerzbank rose by 1.05%, with Deutsche Bank gaining 0.04%.

Deutsche Lufthansa hit reverse, however, sliding by 2.40%, with Air France-KLM earnings results hitting the sector.

From the CAC, it was a bearish day for the banks. BNP Paribas fell by 0.91%, while Credit Agricole and Soc Gen tumbled by 1.35% and by 1.81% respectively.

It was a mixed day for the autos, however. Renault found more support, rallying by 2.98%, while Peugeot fell by 0.33%.

Air France-KLM took a hit on Thursday, sliding by 3.49% off the back of its latest earnings results and negative outlook. While profits fell, it was the warning that operating profit could fall by as much as €200m between February and March that did the damage.

On the VIX Index

The VIX rose by 8.21% on Thursday. Reversing a 3.03% decline from Wednesday, the VIX ended the day at 15.6.

Risk aversion through the European and U.S sessions provided the upside on the day as the markets responded to news of a rise in coronavirus cases in Beijing.

The S&P500 fell by 0.38% on the day to pull the index into the red for the current week.

Even positive economic data out of the U.S was unable to reverse the losses on the day.

VIX 21/02/20 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. Economic data includes prelim February private sector PMIs out of France, Germany and the Eurozone.

Finalized inflation figures for January are also due out of Italy and the Eurozone but will likely have a muted impact on the majors.

Earnings disappointed on Thursday, with companies delivering more warnings over the impact of the coronavirus.

Today’s PMIs will give the markets an indication of what impact the spread of the virus will likely have on the Eurozone economy.

In the futures markets, at the time of writing, the DAX was down by 64 points, with the Dow down by 119 points.

Equities Fall, Risk of Correction Grow, Oil Prices In Reversal

The U.S. Futures Are Down In Early Trading

The U.S. index futures are pointing to a lower open in the Thursday session. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are all down about -0.15%. Traders are cautious after the S&P 500 hit a new all-time due to the increased risk of a virus-related market correction. China reports the number of confirmed cases has topped 74,500 with 2118 dead on the mainland. South Korea reports that its cases are spiking despite containment efforts across the region.

A number of companies have issued revenue warnings because of the virus impact on global trade. Today’s news includes statements from air-carrier Air France and global shipping giant Maersk. Air France describes the impact as “brutal” while Maersk told its investors volumes and traffic will be significantly lower than expected.

Investment banker Goldman Sachs says the market is underestimating the fallout from the epidemic and I think they are right. At current levels, the S&P is trading nearly 19X forward earnings with consensus estimates in decline. At the current pace of decline, the 1st quarter earnings cycle will most likely result in negative EPS growth for the broad market.

Domino’s Surges On Results, Dividend And Guidance

In earnings news, shares of Domino’s Pizza are up nearly 20% after the delivery company reported earnings. EPS and revenue were well above the consensus estimates, the company issued a favorable outlook for the coming year and raised the dividend. Shares of Stamps.com are also on the move, gaining more than 35% after reporting solid revenue and earnings this morning.

At the other end of the spectrum, ViacomCBS and Aaron’s are both moving lower. ViacomCBS reported merger expenses were dragging on results and that sent shares down by -8.0%. Aaron’s, a rent-to-own furniture and electronics chain, reported mixed results and saw its shares move lower as well.

Economic Data Comes In Strong

The day’s economic data came in strong and suggests the market is wrong about FOMC policy. Initial claims came in at 210,000 and as expected. Initial claims are trending at historical lows and are consistent with healthy labor markets. Continuing claims and total claims also fell in this week’s data.

On the manufacturing front, the Philadelphia Federal Reserve’s MBOS came in much hotter than expected. The headline figure rose 20 points to 36.7 and a three-year high. Data within the report shows new orders, deliveries, backlogs, and employment all rose. The Empire State Manufacturing Survey is equally strong indicating a vigorous rebound in U.S. manufacturing this year.

 

European Equities: Consumer Confidence Figures Could Limit any Upside Later Today

Economic Calendar:

Thursday, 20th February

German PPI (MoM) (Jan)

GfK German Consumer Climate (Mar)

French CPI (MoM) (Jan) Final

French HICP (MoM) (Jan) Final

Eurozone Flash Consumer Confidence (Feb)

Friday, 21st February

French Manufacturing PMI (Feb) Prelim

French Services PMI (Feb) Prelim

German Manufacturing PMI (Feb) Prelim

German Services PMI (Feb) Prelim

Eurozone Manufacturing PMI (Feb Prelim)

Eurozone Markit Composite PMI (Feb) Prelim

Eurozone Services PMI (Feb) Prelim

Italian CPI (MoM) (Jan) Final

Eurozone Core CPI (YoY) (Jan) Final

Eurozone CPI (MoM) (Jan) Final

Eurozone CPI (YoY) (Jan) Final

The Majors

It was a bullish day for the European majors on Wednesday, with the CAC40 rising by 0.90% to lead the way. The DAX30 and EuroStoxx600 weren’t far behind, with gains of 0.79% and 0.83% respectively.

A softer EUR and updates from China on the spread of COVID-19 provided support.

According to COVID-19 numbers as at Tuesday night, there were a total of 74,185 cases, with 2004 deaths. The pace of new infections continued to ease, which was considered positive.

Ultimately, however, the expectation of continued fiscal and monetary policy support to prop up the Chinese economy drove the majors on the day.

The Stats

It was a quiet day on the Eurozone economic calendar on Wednesday, with no material stats out of the Eurozone to provide direction.

From the U.S, stats were limited to housing sector data and wholesale inflation figures for January, which had a muted impact ahead of the FOMC meeting minutes which were released after the European close.

The Market Movers

For the DAX: it was a mixed day for the auto sector on Wednesday. Continental led the way rising by 0.65%, with Volkswagen and Daimler seeing more modest gains of 0.15% and 0.18% respectively. BMW bucked the trend on the day, falling by 0.43%.

It was a bearish day for the banks, however. Commerzbank fell by 0.62%, with Deutsche Bank falling by 0.65%.

Deutsche Lufthansa found strong support, rising by 1.02%.

From the CAC, it was a mixed day for the banks. BNP Paribas and Soc Gen rose by 0.15% and by 0.05% respectively, while Credit Agricole fell by 0.11%.

Autos found much-needed support, with even Renault avoiding another day in the deep red. Peugeot rose by 0.83%, while Renault rallied by 2.49%.

Air France-KLM saw red, however, falling by 0.82% on the day.

On the VIX Index

The VIX fell back into the red on Wednesday, with a 3.03% decline. Partially reversing an 8.41% rise from Tuesday, the VIX ended the day at 14.4.

Risk appetite returned on Wednesday, with the U.S majors making solid gains in spite of Apple’s earnings warning on Monday.

Tech stocks led the way, suggesting that the markets see any slowdown in the Chinese economy as a short-term blip.

From the FED, the FOMC meeting minutes suggested that rates would likely remain unchanged near-term, as trade uncertainties diminish. While the FED noted that global growth was beginning to stabilize, uncertainties remained.

There were references to the coronavirus but were not alarmist enough to spook the markets on the day.

VIX 20/02/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. Economic data includes German and Eurozone consumer confidence numbers for March and February.

Wholesale inflation figures out of Germany and finalized January inflation figures out of France will likely have a muted impact on the majors.

Later in the day, Philly FED Manufacturing PMI numbers from the U.S will also provide direction.

On the monetary policy front, we can expect the majors to respond to the overnight FOMC meeting minutes and the ECB monetary policy meeting minutes due out later today.

Ahead of the European session, the PBoC is expected to cut Loan Prime Rates to bolster support. Any hold and expect the majors to come under pressure at the open.

In the futures markets, at the time of writing, the DAX was up by 35.5 points, with the Dow up by 71 points.