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…

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.

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.

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.

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.

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.

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.

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.

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.

European Equities: Risk Pendulum Swings in Favor of the Bulls Ahead of the Open

Economic Calendar:

Thursday, 20th February

German PPI (MoM) (Jan)

GfK German Consumer Climate (Mar)

French CPI (MoM) (Jan) Final

French HICP (MoM) (Jan) Final 

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 Tuesday, with the DAX30 falling by 0.75% to lead the way down. The CAC40 and EuroStoxx600 weren’t far behind, with the pair falling by 0.48% and 0.38% respectively.

Risk aversion gripped the global financial markets as investors reacted to Apple’s profit warning from Monday, which drove demand for U.S Treasuries through Tuesday.

While the Chinese government and the PBoC are looking to limit the impact of COVID-19 on the economy, delays in factory reopenings and a material fall in demand does not bode well.

European and U.S equities at record highs have not been reflective of of the possible economic fallout that may well hit earnings in Q1 and even Q2 of this year.

The Stats

It was a relatively busy day on the Eurozone economic calendar on Tuesday. ZEW economic sentiment figures from Germany and the Eurozone provided direction in the early part of the session.

In February, sentiment towards the German economy deteriorated, as investors fretted over the coronavirus outbreak and impact on world trade.

Germany’s ZEW Economic Sentiment Index fell from 26.7 to 8.7. Economists had forecast a more moderate fall to 21.5.

The Eurozone’s Economic Sentiment Index fell from 25.6 to 10.4. Economists had forecast an increase to 30.0.

From the U.S, the NY Empire State Manufacturing Index failed to provide support, in spite of a jump. The index rose from 4.8 to 12.9 in February.

The Market Movers

For the DAX: it was a bearish day for the auto sector on Tuesday. Daimler led the way down, sliding by 2.54%. BMW, Continental, and Volkswagen saw more modest losses of 1.50%, 1.42%, and 1.50% respectively.
It was also a bearish day for the banks. Commerzbank fell by 0.41%, while Deutsche Bank slid by 2.29% on the day.

Deutsche Lufthansa also saw red, falling by 0.33% as negative sentiment towards Germany’s economic outlook weighed.

From the CAC, it was a bearish day for the banks. BNP Paribas and Soc Gen fell by 0.94% and by 0.49% respectively, while Credit Agricole slid by 2.09%.

Autos also continued to struggle, with Renault facing yet more wrath from investors. Peugeot fell by 1.12%, while Renault tumbled by further 6.31% as investors continued to jump ship.

Air France-KLM found much-needed support, rising by 1.15% on the day.

On the VIX Index

The VIX was on the move after Monday’s holiday, rising by 8.41% to end the day at 14.8 on Tuesday. On Friday, the VIX had fallen by 3.32%.

Market jitters over the likely impact of COVID-19 on trade provided the VIX with support on the day.  On Monday, Apple delivered a profit warning, stemming from the spread of the coronavirus, which caught the markets by surprise.

Prior to Apple’s warning, the focus had been on fiscal and monetary policy support. Positive sentiment had driven the U.S and European majors to fresh record highs.

VIX 19/02/20 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar, with no material stats due out of the Eurozone to provide the majors with direction.

The lack of stats will leave the European majors in the hands of chatter from Beijing and central banks. While hopes of stimulus packages and monetary policy support are positives, the extent of the damage to China and the global economy remain unknowns.

Expect any further profit warnings to also spook the markets further…

Later in the day, housing sector stats out of the U.S will unlikely influence as the markets await the FOMC meeting minutes due out after the European close.

Tuesday’s New York Empire State Manufacturing Index numbers suggest that the FED Chair delivered a fair assessment on economic prospects last week. That doesn’t mean that U.S companies will go unscathed, however.

In the futures markets, at the time of writing, the DAX was up by 69.5 points, with the Dow up by 67 points.

European Equities: Risk Appetite and German Business Sentiment Figures to Test the Majors

Economic Calendar:

Tuesday, 18th February 2020

German ZEW Current Conditions (Feb)

German ZEW Economic Sentiment (Feb)

Eurozone ZEW Economic Sentiment (Feb)

Thursday, 20th February

German PPI (MoM) (Jan)

GfK German Consumer Climate (Mar)

French CPI (MoM) (Jan) Final

French HICP (MoM) (Jan) Final

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 relatively bullish start to the week, with the European majors ending a run of 2-consecutive days in the red. The EuroStoxx600 led the way, rising by 0.30%, with the CAC40 and DAX30 gaining 0.29% and 0.27% respectively.

Support came from the Asian session and the CSI300, which jumped by 2.25%,  supported by stimulus news.

The PBoC announced that banks will be permitted to allow NPLs to rise, while the government announced plans to reduce corporate taxes and fees.

On Thursday, the PBoC is back in action, with loan prime rates also expected to be cut to provide further support.

Both Singapore and HK governments also announced fiscal stimulus plans to mute the effects of COVID-19 on the respective economies.

For the DAX30, a fresh record high in the day came in spite of the effects of COVID-19 likely to be far greater than initially projected.

Expectations had been for economic conditions to begin improving through the 2nd quarter. The continued spread and upward trend in deaths suggest that the Chinese government clampdown may need to continue for the foreseeable future.

After some particularly dire economic data out of the Eurozone of late, an extended economic slowdown would test current levels…

The Stats

It was a particularly quiet day on the Eurozone economic calendar on Monday. There were no material stats from the Eurozone to provide the majors with direction

A marked contraction in the Japanese economy failed to spook the markets going into the open.

COVID-19 figures from the weekend continued to reflect a slower spread of the virus, which was market risk positive.

Later in the day, the U.S markets were closed for President’s Day, leaving volumes on the lighter side.

One positive for the European majors is that the U.S President may need to step back from the talk of tariffs on the EU near-term.

The Market Movers

For the DAX: it was a bullish day for the auto sector on Friday. BMW, Continental, and Volkswagen led the way down, with gains of 1.14%, 1.24%, and 1.17% respectively. Daimler saw a more modest gain of 1.01%.

It was another mixed day for the banks, however. Commerzbank rallied by 2.12%, while Deutsche Bank fell by -0.02% on the day.

Deutsche Lufthansa found further support, rising by 0.30%.

From the CAC, it was a bullish day for the banks. BNP Paribas and Soc Gen rose by 0.93% and 0.65% respectively, with Credit Agricole up by 1.07%.

It was a mixed day for the auto sector, however. Peugeot rose by 0.98% while Renault slid by 4.26% as the markets continued to react to the dire earnings results.

Air France-KLM struggled at the start of the week, with a 0.69% fall on the day.

On the VIX Index

There were no prices for the VIX and the U.S equity markets, with the U.S markets closed on Monday for President’s Day.

VIX 18/02/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar. ZEW economic sentiment figures are due out of Germany and the Eurozone.

The February figures will give some idea of business sentiment towards the spread and anticipated impact of COVID-19 on Germany’s economy.

Later in the day, NY Empire State Manufacturing Index numbers for February will also influence.

Economic indicators are not expected to impress as the spread of COVID-19 weighs on growth. Expect updates from China and beyond on new cases to continue to influence.

While the economic indicators are expected to reflect deteriorating economic conditions, the continued hope of stimulus will likely mute the effect of softer numbers for now at least.

Apple Inc.’s profit warning on Monday, however, was a reminder of what impact the spread of the virus may have…

EU member states may well need to loosen the purse strings to support the majors at current levels…

In the futures markets, at the time of writing, the DAX was down by 45.5 points, with the Dow down by 71 points.

Asia Open: Does One Bad “Apple” Spoil The Whole Bunch, Girl?

 Markets 

US markets were closed Monday for President’s day. Still, the tone was better, likely underpinned by the PBOC’s decision Monday to lower its one-year MLF lending facility by 10bps to 3.15%, its lowest level since 2017.

Chinese measures to help support the economy in the wake of the coronavirus saw onshore Chinese equity markets outperformed yesterday. The CSI 300 was up 2.25%, and the Shenzhen composite rose 3.18%. This policy shift helped lifted offshore China proxies, the Hang Seng and China H shares, but had a minimal bearing on other markets. Investors outside of China markets continued to mildly fret about supply chains and demand contraction, two channels which are difficult to assess.

This morning’s latest Apple quarterly guidance did little to arrest those concerns, as the report suggests that due to the Covid19 knock-on effects, “that worldwide iPhone supply is temporarily constrained, though demand remains strong, production is ramping up slower than expected.”

Indeed, the market’s ability to look through these types of short-term supply chain concerns will likely guide short term momentum. Mind you, investors have shown remarkable resilience to look through just about everything that has been thrown at them of late.

Still, Apple is one of the growth leadership stocks which has been driving the markets higher in part due to the Fed repo remedies. So, the tricky question is “does” one bad “Apple” spoil the whole bunch girl.”

Mainland equities have now retraced losses, SHCOMP significant gains yesterday are taking prices back to pre-coronavirus levels, and now the aftershock remains in EUR, commodity complex, and the tourist parts of EM Asia. However, going forward, it isn’t so effortless to see a big push into the “Rest of Asia” assets unless growth very quickly surprises to the upside.
Still, this might not stop investors from trying to front-run the manufacturing rebound trade.

It’s a tricky market environment. There isn’t intemperate fear, and there isn’t unreasonable optimism. While the virus stories don’t carry the same headline gravitas, it’s still a focal point, but the economic data concerns continue to simmer on the back burner. Korea’s 20-day exports on Feb. 21 is the first data point barometer of how the month is panning out. It will be an essential test of investors’ resolve, given some positioned for a post-coronavirus manufacturing rebound.

Oil markets

News flow around Covid-19 hasn’t significantly improved, but crude markets have normalized in reacting to it, while a significant hit to demand 1Q appears priced into the scrim. That’s assuming Russia plays ball, of course, with the JTC production cut remedies.

While the long-term implication of the outbreak remains uncertain, the immediate impact on productivity is becoming apparent 1) decision to extend the CNY holiday, 2) transport restrictions, & 3) mandatory 14- day quarantine for returning workers will be an obvious impediment to crude prices. But how correctly has the market priced in these concerns is the burning question?

While its more comfortable to call oil higher, given the likely pent-up demand to lead to a recovery from Q2, it’s far too early to suggest oil market concerns have dissipated.

The US rig count showed a +2 rise in oil rigs. Still, we are not seeing the average 1Q growth we might typically expect, which is alleviating oversupply concerns a touch – but this is understandable given the pressure on E&P cash flows and the lower price.

Gold markets

Any glean of a sell-off in stock markets due to the Covid 19 knock-in effects will continue to drive gold demand higher as the bias to be hedged long gold in the current environment remains enduring. This morning Apple downgraded forward guidance due to Covid19 concerns and has provided that fillip to gold prices this morning as risk-on sentiment has soured precipitously.

While gold’s negative correlation with equities suggests that investors remain quite sensitive to fluctuations in risk sentiment, indeed, gold is very much on everyone’s radar. And this suggests bids will stay firm on dips to $ 1575-65 levels even more so as there are now more cuts priced for the Fed than any other central bank as Friday’s core US retail sales data does raise questions over core consumption in the US. And while Fed members have been quick to play up the strength of the US consumption, the trend appears to be weakening, and the markets continue to price in Fed rate cuts into the summer. Bullish for Gold.

Currency markets

Asia FX

Even although coronavirus risk premia are reducing and vols are taming, there’s a gigantic swath of economic carnage left in Covid-19 wake so even with Hubei province now reporting fewer infections with Korea’s 20-day exports on Feb. 21, the first data point barometer of how the month is panning out, Asia FX optimism could weigh on local risk today.

Still, on moves to USDCNH 7.0 and correlated proxy gaps , investors will be looking for a buying Asia FX opportunity but could remain cautious about adding more currency risk before assessing the depth of the economic fallout. But with regional policymakers taking protractive actionable measures to thwart of the legacy effects of Covid-19, this should be viewed as growth positive. But unless growth very quickly surprises to the upside, which I don’t expect, Asia FX risk is probably best expressed through Asia FX higher yielders at the moment.

The Malaysian Ringgit

With the Yuan backing up this morning suggesting investors need to get a better look into regional economic data to make sure growth carnage is not worse than expected, the Ringgit could struggle for traction today. But the biggest issue for the Ringgit very much relies on a pickup in growth expectations to recover sustainably and that growth spurt might not occur to Q2.

The Singapore Dollar

The SGX forwards market is unusually quiet ahead of today’s budget release (1500 SGT). The curve is either “bid without,” or you could drive a truck through the spread. The lack of liquidity bid side liquidity along the curve suggests that locals are cautiously optimistic about a significantly large budget delivery, which could see the 6m-1y SGD FX get smashed of that comes to fruition.

The Euro 

The EURUSD is still trading at the lows of the latest sell-off the week at the lows, struggling to recover. Price action is telling, and the consensus is more and more for a lower EURUSD; positions are accordingly. CFTC data most bearish since June 2019 and risk reversals most in favor of puts since September 2019. But with the market adequately positioned for a move lower, the risk of a short squeeze looms the longer it takes to break through 1.0800

 

European Equities: COVID-19 Updates and Sentiment towards the Economic Outlook to Influence

Economic Calendar:

Tuesday, 18th February 2020

German ZEW Current Conditions (Feb)

German ZEW Economic Sentiment (Feb)

Eurozone ZEW Economic Sentiment (Feb)

Thursday, 20th February

German PPI (MoM) (Jan)

GfK German Consumer Climate (Mar)

French CPI (MoM) (Jan) Final

French HICP (MoM) (Jan) Final

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 end to the week for the European majors, as the majors saw red for a 2nd consecutive day on Friday.

The CAC40 fell by 0.39% to lead the way down, with the EuroStoxx600 and DAX30 falling by 0.09% and by 0.01% respectively.

A combination of negative data out of the Eurozone coupled with the continued spread of COVID-19 pinned the majors back.

Following a major spike in new cases and the largest number of deaths since the start of the outbreak, figures on Friday failed to ease market jitters.

The figures suggested that the impact on the Chinese economy may be greater than had initially been projected. With the Eurozone’s manufacturing sector in the doldrums, it’s going to take some time before any recovery…

The Stats

It was a relatively busy day on the Eurozone economic calendar on Friday. Key stats included 4th quarter GDP numbers out of Germany and 2nd estimate GDP numbers for the Eurozone.

Trade data out of the Eurozone and finalized inflation figures out of Spain had a muted impact on the day.

According to Destatis, the German economy stalled in the 4th quarter, with the economy growing by just 0.3% year-on-year. Economists had forecast 0.1% growth for the quarter and 0.2% growth year-on-year.

Compared with the previous quarter,

  • The final consumption expenditure of both households and the government slowed down markedly.
  • While gross fixed capital formation in machinery and equipment was down, fixed capital formation in construction and other fixed assets increased.
  • Exports fell marginally in the quarter, while the imports of goods and services increased.

The Eurozone

From the Eurozone, the economy grew by 0.1% in the 4th quarter, which was in line with the 1st estimate. Year-on-year, the economy grew by 0.9%, revised down from 1.0%, according to Eurostat.

While GDP numbers were negative, trade data was on the positive side. According to Eurostat, the Eurozone trade surplus widened from €20.7bn to €23.1bn in December.

  • Exports of goods to the rest of the world increased by 4.8%, year-on-year, to €186.1bn.
  • Imports from the rest of the world rose by just 1.1% to €163.0bn.
  • Intra-euro area trade increased by 1% to €145.5bn.

In the period of January to December 2019, compared with January to December 2018:

  • Euro-area exports of goods to the rest of the world rose by 2.7% to €2,345.4bn
  • Imports over the same period increased by 1.5% to €2,119.7bn.
  • The Euro area trade surplus widened from €194.6bn to €225.7bn.
  • Intra-euro area trade increased by 0.9% to €1,965.1bn in Jan-Dec 2019 when compared with Jan-Dec 2018.

The Market Movers

For the DAX: it was a bearish day for the auto sector on Friday. BMW and Volkswagen led the way down, with losses of 0.56% and 0.80% respectively. Continental and Daimler saw more modest losses of 0.07% and 0.06% respectively.

Negative sentiment towards the outlook for the auto sector weighed at the end of the week.

It was a mixed day for the banks, however. Commerzbank rallied by 2.88%, while Deutsche Bank fell by -0.20% on the day.

Deutsche Lufthansa managed to avoid another day in the red with a 0.49% gain.

From the CAC, it was a mixed day for the banks. BNP Paribas and Soc Gen both gained 0.21%, whilst Credit Agricole slid by 1.17%.

It was a bearish day for the auto sector, however, with Peugeot and Renault falling by 1.68% and by 0.90% respectively.

Renault’s earnings left the pair in the deep red on the day.

Net profit slumped by 99% to €19m in 2019, with contributions from Nissan tumbling by more than 80%. Net profit had stood at €3.5bn in 2018.

Air France-KLM struggled at the end of the week, with negative updates on COVID-19, contributing to a 0.40% fall on the day.

On the VIX Index

The VIX fell by 3.32% on Friday. Reversing a 2.98% gain from, the VIX ended the day at 13.7.

Mixed economic data out of the U.S on Friday coupled with updates on the new number of COVID-19 cases limited the downside.

The S&P500 and NASDAQ saw gains of 0.18% and 0.20% respectively on Friday, while the Dow fell by 0.09%.

VIX 17/02/20 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. With no material stats due out.

The markets will need to wait until tomorrow for ZEW economic sentiment figures due out of Germany and the Eurozone.

The February figures will give some idea of business sentiment towards the spread and anticipated impact of COVID-19 on Germany’s economy.

In the early hours of this morning, we saw GDP numbers out of Japan deliver an early warning of what may lie ahead…

The Japanese economy contracted by 1.6% in the 4th quarter, which was far worse than a forecasted 0.9%. In the 3rd quarter, the economy had grown by 0.4%. Year-on-year, the economy shrank by a whopping 6.3%, following 1.8% growth in the 3rd quarter. Economist had forecast a fall of 3.7%.

From the weekend, the latest numbers of COVID-19 were somewhat better, with just 2,009 new cases on Saturday. There were an additional 142 deaths, however, which took the total number of deaths to 1,669.

In the futures markets, at the time of writing, the DAX was up by 32 points, with the Dow up by 30 points.

European Equities: A Week in Review – 15/02/20

The Majors

It was another bullish week for the European majors in the week ending 14th February, with the DAX30 rallying by 1.70% to lead the way. The CAC40 and EuroStoxx600 saw more modest gains of 0.66% and 1.49% respectively.

A bullish start to the week delivered the gains, with the markets responding to a slower rate of infection in China, according to figures that had been released on Tuesday.

Economic data from the Eurozone was of little help in the week, while hopes of a sizeable stimulus package from Beijing took the edge off.

Through the 2nd half of the week, updates on the spread of COVID-19 pinned back the majors that saw red for 3 consecutive days.

The Stats

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

Key stats included December industrial production figures out of the Eurozone and 4th quarter GDP numbers for Germany and the Eurozone.

Industrial production slid by 2.10%, reversing a 0.2% rise from November with interest. The figures, released on Tuesday, had a muted impact on the majors, however, as the markets reacted to the brief lull in COVID-19 cases.

The market focus then shifted to 4th quarter GDP numbers out of Germany on Friday. According to 1st estimate numbers released by Destatis, the German economy stalled in the 4th quarter. Economists had forecast growth of 0.1%, quarter-on-quarter. In the 3rd quarter, the economy had grown by 0.2%.

While the German economy stalled in the 4th quarter, avoiding a contraction limited the impact on the DAX30.

Year-on-year, the economy grew by 0.3%, which was down from 1.1% in the 3rd quarter. Economists had forecast growth of 0.2%.

For the Eurozone, 2nd estimate growth for the 4th quarter was unchanged at 0.1%, while revised down from 1.0% to 0.9% year-on-year.

Inflation figures released during the week had a muted impact.

Elsewhere, key stats from the U.S provided support, with consumer confidence on the rise, according to figures released on Friday. Retail sales figures failed to impress on Friday, however.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Continental and Volkswagen led the way once more, rallying by 5.46% and by 2.73% respectively. BMW and Daimler saw more modest gains of 1.78% and 0.89% respectively.

The gains came in spite of a bearish 2nd half of the week, with auto sales figures out of China weighing.

According to the latest figures released by China’s Association of Automobiles, there was an 18% slump in car sales to China in January, year-on-year. It was the 19th consecutive fall in car sales. China’s Association of Automobiles also warned that the virus will deliver a huge shock to the car industry.

It was a particularly bullish week for the banking sector, with Deutsche Bank rallying by 7.17% and Commerzbank up by 13.77%.

From the CAC, it was a relatively bullish week for the banks. BNP Paribas and Soc Gen rallied by 3.57% and by 3.86% respectively, while Credit Agricole saw a more modest 0.37% gain.

It was a bearish week for the French auto sector, however. Peugeot and Renault fell by 0.15% and by 1.60% respectively.

The shift in risk appetite early in the week also supported airline stocks. Germany’s Lufthansa rose by 4.03%, with Air France-KLM up by 8.02%.

On the VIX Index

It was a 2nd consecutive week in the red for the VIX in the week ending 14th February. Following a 17.78% slide from the previous week, the VIX fell by 11.57% to end the week at 13.7.

U.S equities hit record highs in the week, weighing on the VIX, which struggled in spite of the continued spread of COVID-19 and rise in the number of deaths.

Economic data at the end of the week delivered mixed results for the markets. While consumer confidence hit a 15-year high, retail sales were lackluster in January, with industrial production falling more than had been forecast.

VIX 15/02/20 Weekly Chart

The Week Ahead

It’s a relatively busy week ahead on the Eurozone economic calendar. Through the 1st half of the week, Germany’s business and consumer sentiment figures are in focus.

With the ECB continuing to rely on consumer spending to support growth, Tuesday’s numbers could test the majors further. The spread of COVID-19 and anticipated impact on economic growth is likely to weigh on confidence.

Business confidence is also expected to wane, particularly when considering the negative outlook on growth in China.

Last week, China’s auto sales figures and outlook should certainly raise some red flags for the sector.

In the 2nd half of the week, prelim February private sector PMIs are due out that will garner plenty of attention.

The markets will be looking for any effects of the COVID-19 virus on the Eurozone’s private sector. If forecasts are accurate, it’s going to be a bad month for the manufacturing sector…

From elsewhere, private sector PMI numbers from the U.S will also influence in the week. On Tuesday, NY Empire State manufacturing figures are due out ahead of Philly numbers on Thursday.

At the end of the week, expect U.S private sector PMI numbers to have the greatest influence, however…

While the stats will provide direction, news from China will likely overshadow the stats.

Any material rise in COVID-19 cases and deaths will test the market resilience as would any further spread globally. While the WHO looked to instill calm last week, doubts have crept in over the accuracy of China’s numbers. This may leave the markets all the more sensitive to the numbers from elsewhere.

European Equities: The Economic Calendar and COVID-19 Updates to Influence

Economic Calendar:

Friday, 14th February 2020

German GDP (QoQ) (Q4) 1st Estimate

German GDP (YoY) (Q4) 1st Estimate

Spanish CPI (YoY) (Jan) Final

Spanish HICP (YoY) (Jan) Final

Eurozone GDP (QoQ) (Q4) 2nd Estimate

Eurozone GDP (YoY) (Q4) 2nd Estimate

Eurozone Trade Balance (Dec)

The Majors

A 2-day rally came to an end on Thursday as the European majors struggled over updates on new COVID-19 cases and a spike in the death toll.

The CAC40 led the way down, falling by 0.19%, with the DAX30 and EuroStoxx600 falling by just 0.02% and 0.02% respectively. Losses were heavier in the early part of the day, with the DAX30 falling by as much as 1.26% before recovering.

While the number of COVID-19 cases spiked and Wednesday marked the largest number of deaths since the outbreak began, the WHO said that the number of cases outside of China was not rising dramatically.

The WHO may have averted a Thursday meltdown but was not able to avert more bearish forecasts for the Chinese economy. For the markets, the only good news was that the number of recoveries was also on the rise.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Thursday. Key stats were limited to finalized January inflation figures out of Germany.

According to Destatis, consumer prices fell by 0.6% in January, which was in line with prelim and forecasts. In December, consumer prices had risen by 0.5%.

  • The annual rate of inflation stood at 1.7%.
  • Prices for alcoholic beverages and tobacco were up by 2.8%.
  • Support also came from Transport (+2.7%), Restaurants and hotels (+2.7%), Food and non-alcohol-beverages (+2.4%).
  • Education saw the largest annual rate of decline, however, with prices falling by 2.3%.

From the U.S, economic data included January inflation and the weekly jobless claims figures.

The stats had a muted impact on the European majors, however, as the markets focused on COVID-19 news.

The Market Movers

For the DAX: it was a bearish day for the auto sector on Thursday after having seen particularly strong gains on Wednesday. BMW and Daimler led the way down, with losses of 1.65% and 1.58% respectively. Continental and Volkswagen saw more modest losses of 0.39% and 0.91% respectively.

While the WHO managed to calm the nerves across the global equity markets, China’s Association of Automobile Manufacturers released the latest sales figures and warned that the virus will deliver a huge shock to the car industry.

The latest figures showed an 18% slump in car sales to China in January, year-on-year. It was the 19th consecutive fall in car sales.

It was a bullish day for the banks, however. Commerzbank jumped by 8.94%, with Deutsche Bank rallying by 2.24% on the day.

Commerzbank earnings results led to the Thursday rally. Revenue rose by 6.8% in the 4th quarter, driven by a rise in operating profit. The upside came in spite of a dividend cut as the bank looks to further trim the fat to turn things around.

Deutsche Lufthansa returned to the red, however, falling by 1.27%.

From the CAC, it was a mixed day for the banks. BNP Paribas fell by 0.02%, whilst Credit Agricole and Soc Gen rose by 0.81% and by 0.36% respectively.

The French auto sector also struggled following the latest car sales figures from China. Peugeot slid by 2.09%, while Renault eked out a 0.03% gain.

Air France-KLM found support in spite of the negative updates on COVID-19, rising by 0.61%.

On the VIX Index

The VIX rose by 2.98% on Thursday. Partially reversing a 9.49% slide from Wednesday, the VIX ended the day at 14.2.

Market sentiment towards the latest COVID-19 figures from China pinned back the U.S majors on Thursday.

News had hit the wires on Thursday of 254 additional deaths, which was the largest single-day death toll since the outbreak began. China had also confirmed 15,152 new cases.

On Wednesday, the S&P500 closed out the day with a 0.16% loss, which was minor considering the spike in the death toll.

VIX 14/02/20 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. 1st estimate GDP numbers for the 4th quarter are due out of Germany, along with 2nd estimate numbers for the Eurozone.

Finalized January inflation figures from Spain and the Eurozone’s December trade figures are also due out.

The market focus will likely be on Germany’s GDP numbers. Economists are expecting Germany to avoid a contraction in the 4th quarter…

2nd estimate GDP numbers out of the Eurozone would need to avoid a downward revision.

From the U.S, we can expect January retail sales and February prelim consumer sentiment figures to also influence.

Throughout the day, expect the news wires and updates on the spread of COVID-19 to also garner plenty of attention.

In the futures markets, at the time of writing, the DAX was down by 8.5 points, with the Dow down by 31 points.

Ho Hum, Another Day Another Stock Market High Water Mark. US Markets Close At Record Highs As Coronavirus Fear Ebb.

Revised market open 

China Hubei Coronavirus update Feb 12th: 14,840 additional cases (under revised standards) v 1,638 prior; Daily death toll 242 v 94 prior

Revised standards have started to include cases diagnosed under new method – Notes it started involving cases diagnosed with the new process among confirmed cases from Thursday (Feb 13th) –

This certainly doesn’t sound good, and if I’m reading this headline correctly as on the first glean, there could be a severe case under-reporting going on.

Stay calm and buy the dip?

The Hubei Coronavirus update headline has initially hit like a ton of bricks given this is one of the market’s biggest fears.

So, traders have jumped into sell first, ask questions later mode. But is it time to stay calm and buy the dip?

The headline on the sharp jump in Covvid-19 cases looks gnarly on the surface. Still, it is essential to note that in Hubei, the epicenter of the outbreak, there has been a severe shortage of testing kits reported over the past few weeks. Many people who had symptoms (and even positive affirmation of things like pneumonia) were unable to be confirmed as virus carriers due to the testing kit shortage, and some were sent home to self-quarantine. The government made a push this weekend to clear the backlog of tests, and this big jump in confirmed cases could be a result of this.

And while there could be a knock-on effect where the Rest of China has been under-reporting. Still, I don’t think its a threat to the virus cluster beyond Hubei at this stage as other countries are certainly adhering to strict reporting protocol, and the cluster effect outside of China is receding.

On a more market-friendly note, the PBoC will continue to intervene perhaps now even more aggressively either with RRR or deeper interest rate cuts.

But Asia market rather than a global market and of course, demand sensitive to China commodities like Oil will be more re prone to the sell-off. Still, for ASEAN currency risk, its unlikely to weaken off to significantly as Yuan is doubtful to weaken through 7.0 USDCNH given the PBoC policy backstop.

Ho Hum, another day another stock market high water mark.US markets close at record highs as coronavirus fear ebb.

US equities post another day of gains WednesdayS&P500 up 0.5% heading into the close, US 10-year treasury yields rose 3bps to 1.63% and the 2s5s curve – which inverted earlier in the week – has turned positive again. Asia equity futures are trading in the green pre cash market open with the China proxies looking to open up well, while oil lifted 2.6%

Investors’ sentiment was boosted by the fact that China reported the lowest number of new virus cases since the end of January, while a senior medical adviser suggested the outbreak could be over by April.

Central bankers continue to remind that it is too early to gauge the economic impact from the virus fully; the RBNZ and Riksbank the latest to acknowledge downside risks. Still, the market looks increasingly willing to look through virus headlines. And with market flush with cash providing the juice in the market and given the negative data impact is so well flagged, in no small degree the growth downgrades have become somewhat irrelevant.

With risk positive momentum building and stocks and commodities both singing from the same song page, it appears the markets are finally letting go of the coronavirus fears.

Although “The Street” is downgrading growth forecasts, for now, the market has decided enough is enough. And the source of funds for the latest asset price move is the PBoC policy bazooka bolstering Asia sentiment the Fed’s repo remedies which have left banks awash with cash.

The coronavirus impact is probably just a near term demand shock that has been mitigated by central bank liquidity. Still, given that stocks are purely a momentum story at the moment, investors have little choice but to get on board or risk getting left at the station.

S&P 500 3400 level sure sounds like a beautiful Valentine’s day gift, especially if you own equities.

Oil markets

Oil is up as OPEC awaits an official response from Russia regarding proposed production cuts. This despite a hefty inventory build reported by the EIA.

Oil markets posted its most significant daily gain in six-week after reports of coronavirus cases in mainland China appear to be leveling off, according to the latest data from the Johns Hopkins Centre For Systems Science and Engineering.

So, despite the sizeable inventory swell, the EIA report fell through the cracks given the mounting evidence the coronavirus transmission is slowing. At the same time, oil demand sentiment is getting further boosted by stories that Foxconn hopes to resume 50% of its production in China by the end of the month and be at 80% capacity by the end of March.

But not wanting to sound like a killjoy, the markets have a sizeable glut to deal with, and the EIA report did little to alleviate those oversupplied concerns, bringing market attention full circle back to the elephant in the room, Russia agreeing to the JTC production compliance.

But Russia may find it easier to stomach temporary production cuts given relief is just around. And their market share won’t necessarily be compromised by US production, which would also be less willing to absorb the start-up cost to ramp up production immediately Which could be hugely bullish for oil markets

But clearly, the big story for prompt oil concerns is coronavirus fears are lifting as the virus transmission eases and which should send more shorts running for cover, While those shorts that remain at the risk-on party won’t be dancing to far from the exits as China demand could return with a vengeance.

Gold markets

Gold demand was tempered by the strong US dollar and rising risk appetite and while the underlying support remains there, but the upside looks limited over the near term.

Gold has been range-bound of late but supported given the headwinds it faces. Two factors continue to offer support One is that global monetary policy remains soft, and interest rates are low. The other is that geopolitical risks beyond the coronavirus are bullish. But with ETFs, and Comex net long positions high and if anything, a little bit stretched. When flagged against a firm USD, stock market gains, and the bounce higher in US bond yields, it suggests fast money traders who have been driving the bulk of action these days would probably be more inclined to trade gold from the short side limiting gains.

Chair Powell’s comments to the congress were bullish for gold longer-term but neutral in the immediate to short term. Without an immediate dovish Fed impulse, there is limited upside for gold currently, but the US election cycle risk should support gold. The race now moves to Nevada with a caucus on 22 February with an essential debate before that on 19 February, but it is still unclear if Michael Bloomberg, who would pose a real threat to Trump, will meet the polling criteria to make it to the debate stage.

Asia FX

The Yuan 

The PBoC continues to stabilize the markets has limited RMB weakness via fixing USD/CNY lower than the market’s expectation while introducing various countercyclical measures to encourage portfolio inflows. As the market gradually pivots out of the virus haze and begins to see some light at the end of the tunnel and coupled with the mainland macro measures designed to ramp up production, Asia FX traders could start to front-run the China rebound trade more aggressively.

According to Deutsche Bank MTD, net equity inflows are at ~$2bn, slightly more than in January and well above the 2019 average, while bond flows in January showed ~ $2.1bn of inflows.

So, if the PBoC continues to limit RMB weakness, and with Bond market rallying, portfolio inflows should continue to remain active, especially given the ongoing bond index inclusion, such as to the GBI-EM, which will include China starting from the 28 February. Hence the healthy Hedge Fund appetite for all things RMB.

The Ringgit

While the Ringgit weakened on the worse than expected GDP print, which then brought forward rate cut prediction. Improving regional risk sentiment as coronavirus cases in mainland China appears to be leveling off, and rising oil prices should provide some immediate support for the Ringgit.

The Tourism basket

While the Thai Bhat has recovered from the peak coronavirus fear levels, the Singapore dollar continues to struggle for traction. But unlike regional currencies like the MYR that should benefit from the local rebound trade on the back of China pent up production demand coming back online. There has been a sizable chunk of tourism revenue in Thailand that has been lost, and you can’t replace that. So, any further gains in the THB might not be so immediately forthcoming, given that it’s impossible to make up that lost revenue. Still, the Thai market is in a much better place than it was only 48 hours ago.

Secondary virus cluster fears continue to weigh on Singapore, so traders remain very defensive knowing the MAS could eventually cut interest rates to support the flagging Singapore economy.

G-10 Currencies

The Japanese Yen

The main G10 flow over the past 24 hours has been USDJPY, with the pair back above the 110 handles as risk continues to trade well supported. And with risk sentiment well supported as virus fears turn benign, it seems pointless to fight it. While +110 has proven to tricky level to go long recently, gains could be a bit of a grind today unless the stock market momentum takes a run at the S&P 500 3400 levels.

The Euro

In EURUSD, the constant supply over the past 24 hours taking its toll. The pair is trading below Tuesday’s lows, but still holding just below the October lows, at least for now. And now with the Euro as the go-to currency trade funder via EM FX kicking in, offers will likely remain thick over the near term. The markets at a critical level, so the next move could be key.

Canadian Dollar 

More positive signs for the Loonie is that more topside strikes north of 1.3500 is getting offered through the brokers as the spot price weakens, given the recovery in oil prices.

 

European Equities: Can the Upswing Continue? New COVID-19 Cases Will Need to Slow Further…

Economic Calendar:

Thursday, 13th February 2020

German CPI (MoM) (Jan) Final

Friday, 14th February 2020

German GDP (QoQ) (Q4) 1st Estimate

German GDP (YoY) (Q4) 1st Estimate

Spanish CPI (YoY) (Jan) Final

Spanish HICP (YoY) (Jan) Final

Eurozone GDP (QoQ) (Q4) 2nd Estimate

Eurozone GDP (YoY) (Q4) 2nd Estimate

Eurozone Trade Balance (Dec)

The Majors

It was another bullish day for the European majors on Wednesday, with a slowing number of COVID-19 cases in China providing support.

The DAX30 led the way once more, rising by 0.99%, with the CAC40 and EuroStoxx600 gaining 0.83% and 0.65% respectively. A 2nd consecutive day in the green saw the DAX30 and EuroStoxx600 hit fresh record highs.

Following a pullback on Monday, risk appetite returned mid-week, while the EUR has born the brunt of negative sentiment towards the Eurozone economy.

For the DAX30 in particular, the 1.97% fall in the EUR for the current month has certainly supported the rise to record highs. This has come at a time when banks are beginning to project a recession in Germany…

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Wednesday. Key stats were limited to December’s industrial production figures out of the Eurozone.

According to Eurostat, industrial production fell by 2.1% in December, following a 0.2% rise in November.

  • The production of capital goods fell by 4.0%, intermediate goods by 1.7%, non-durable consumer goods by 1.3% and durable consumer goods by 1.1%.
  • Energy production fell by a more modest 0.5%.
  • Ireland recorded the largest monthly decline in production, with production sliding by 6.2%.
  • Production in Portugal and Greece led the way up, rising by 2.9% and by 2.5% respectively.
  • Year-on-year, industrial production was down by 4.1%, with Estonia (-9.9%) and Germany (-7.2%) seeing the largest slides in production.
  • Average industrial production for the year 2019, compared with 2019, fell by 1.7%.

From the U.S, there were no material stats to provide direction later in the day.

The Market Movers

For the DAX: It was a particularly bullish day for the auto sector, with the big 4 in the top 5 performing stocks on Wednesday. Continental surged by 6.87% to lead the way on the DAX. BMW and Volkswagen also found strong support, rallying by 4.78% and 3.59% respectively. Daimler wasn’t far off the pace, rising by 3.09%.

The upside for the auto sector came in spite of concerns over the impact of COVID-19 on the Chinese economy and beyond.

It was also a bullish day for the banks. Commerzbank rose by 1.25%, with Deutsche Bank rallying by 3.41% on the day.

Deutsche Lufthansa was also amongst the top 10 performers on the DAX, rallying by 2.85%.

From the CAC, it was also a bullish day for the banks. BNP Paribas and Credit Agricole rose by 1.61% and by 0.37% respectively, while Soc Gen rallied by 3.78%.

The French auto sector also benefited from the risk-on sentiment, with Peugeot and Renault rallying by 4.96% and 2.07% respectively.

Air France-KLM struggled, however, ending the day down by 0.52%.

On the VIX Index

The VIX returned to the red on Wednesday, sliding by 9.49%. Reversing a 0.93% gain from Tuesday, the VIX ended the day at 13.7.

Updates from China on the spread of COVID-19 provided support to riskier assets on the day that led to record highs for the U.S majors.

COVD-19 numbers from China showed a slowing rate of infection, with the mortality rate reportedly falling to just 0.1%.

While economic disruption is anticipated, the Chinese government also vowed to deliver a stimulus package to nullify the impact of the virus on the economy.

On Wednesday, the S&P500 closed out the day with a 0.65% gain.

13/02/20 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone economic calendar. Finalized inflation figures are due out of Germany, which is unlikely to have a material impact on the majors.

From the U.S, we can expect January inflation figures to influence, however.

Throughout the day, expect the news wires and updates on the spread of the coronavirus to also influence.

We’ve seen the markets respond to the falling rate of infections reported out of China. The slowdown will need to continue, not just in China but across other geographies to continue to support demand for riskier assets.

On the earnings front, Commerzbank is in focus later today.

In the futures markets, at the time of writing, the DAX was down by 7 points, with the Dow down by 92 points.

Bubbles do Funny Things To Bank Traders.

US equities were a touch stronger Tuesday but trading well off intraday peaks with S&P500 up 0.1% heading towards the close. US treasury yields rose, — ten-years up 2bps to 1.59%. With gains in European equities and most of Asia as well, the market looks increasingly willing to look through concerns about coronavirus, newly named Covid-19 overnight by the WHO. In his Congressional testimony, Fed Chair Powell noted the Fed is “closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.” However, it was too early to make a full assessment. BoE Governor Mark Carney was similarly cautious but noted the virus had not led to any tightening of financial conditions for UK banks.

But it could be the degree to which investors are willing to look past weak China high-frequency data in the coming weeks will that help determine whether the risk rally has the legs to run.

I was relieved this morning to see the markets hadn’t gone stark raving bonkers and taken the S&P 500 closer to 3400. However, risk parity bubbles do funny things to bank traders who appear to be borrowing a page out of George Soros playbook “when I see a bubble forming; I rush in to buy it. “Six weeks into 2020 and already the S&P 500 has hit the mean of strategists forecasts for the year-end of 3355 points. On a further 7% gain, the SPX will be above the most bullish of all predictions recorded by Bloomberg of 3600.

But the markets are probably not quite as risk-on as the record-setting pace might suggest. Growth or defensive stocks have outperformed value by 25% so far this year. Equities are indeed reigning supreme, but it’s driven by the mega-momentum stocks (tech) rather than the economically-sensitive cyclical stocks. Suggesting that even if the consensus view for a sharp “V” economic reaction to coronavirus is wrong and the recovery period takes on a hockey stick shape, institution equity ownership is still pretty cautious by design. So provided the Federal Reserve has the markets back, the bulk of US stock market positioning should remain relatively immune to the current market worries at this stage. So, if you’re looking for a contrarian storyline, you might want to skip the next few paragraphs.

There is quite a bit of ink being spilled to say that markets are not taking nCoV seriously. But with 10-year yields falling to sub-1.6% and the Fed hinting that its reaction function includes Covid-19 and the PBoC already flooding markets awash with cash, papers over that cautious scenario. Such easy financial conditions with the potential for even more comfortable conditions as global central banks dovish reaction function to a temporary global growth shock has investors champing at the bit.

Why are equities up and bonds up too? 

The S&P 500, the Nasdaq, and the Dow Jones Industrial Average are all trading around record highs while the 10-year US Treasuries yield is at 1.58%, from 1.9% at the start of the year. For that, everyone can blame the central banks, who have succeeded in dampening volatility by guiding markets successfully in the direction they want them to go.

The US Federal Reserve, in its bid to avoid another repo market meltdown reminiscent of September 2019, had probably overflooded things when it injected billions of dollars of cash into the system to push rates lower. This monetary policy overcooked state of things left banks with heaps of money, which they are putting to work buying bonds. And as such, equities, particularly growth stocks, are reveling in the afterglow of the Fed easy money have only been able to gain “because” Treasury yields are low.

And with everyone thinking the Fed is either on hold or cutting with a rate hike a long way off as such traders continue to look for optimal bullish risk-reward and continue to shrug off the likely economic impact of the Covid-19.

Are things stretched too far? 

Possibly but at this time, there is absolutely no stopping equity market momentum. So far this year, investors have shrugged off patchy earnings, increased tensions between the US and Iran, and the nCoV outbreak. There isn’t much else you can throw at them right now. With that in mind, it seems pretty lame to think the outcome of the Democratic presidential primary is going to have much impact. Perhaps the biggest threat to the market is the consensus view that the effect of the coronavirus will be a V-shaped recovery.

Oil markets

With OPEC and friends paralyzed thanks to Russia DEC CL 20 vs. 21 in contango BrentWTI <$4 suggesting globalized Covid-19 effect runs deep. Any thought to what breaks this daily descending channel??

Although prices bounced back from a one-year low, the thought that OPEC could sit on their hands until March has brought the bears back out on mass. OPEC + failure for now to follow the Joint technical Committee’s recommendation to cut an additional 600kb/d of production has allowed sentiment to turn cumulatively more negative.

The anticipation of an early February emergency meeting of the OPEC+ group had supported oil prices. Still, a near term meeting seems to be a view supported on little more than a wing and a prayer at this stage. And now, it appears OPEC wants to quantify the demand implication before acting. Still, with the cartel failing to act swiftly on the JTC recommendation, this has allowed the narrative to fester and create divisions within the group.

But surely, it’s tough for OPEC and Russia to ignore the forward curve that continues to move deeper into contango. And traders probably wouldn’t be surprised to see an emergency meeting called if WTI moves much lower.

We’re at a significant inflection point for the Oil markets. If China fails to contain the virus domestically within a few weeks and or virus clusters expand around the globe, it’s a whole new kettle of fish as tail risks get incredibly fatter for oil markets.

Gold markets

There has been very little interest in gold in the past few days as the stronger USD continues to sap gold momentum, plus the bulk of buying on the back of virus fears went through early last week.

With the majority of hedge positions in place, as nCoV risk turns benign and investors continue to shrug off the economic impacts from Covid-19, gold speculators and fast money accounts will generally start to trade the ranges in gold from the short side — effectively keeping a lid on price action which then ultimately triggers some profit-taking from weaker gold longs.

With markets awash with cash, the fear of creating an equity market asset bubble alone should keep the Fed parked on the sidelines, not necessarily bullish for gold. But instead, it’s US fiscal policy, which remains long term price friendly.

So far, global financial markets have soaked up the growth in US debt. The yield on the critical 10-year has stayed well below 2% and is close to 1.5%. Interest repayments, as a share of GDP, are only half the level of the early 1990s, which puts less pressure on government coffers. That is despite the growth in debt. But this is a knock-on effect of investors’ demand for safe assets, which include gold.

While Fed policy certainty is probably lessening the demand for gold, but should investors’ appetite for US debt start to fade, gold is likely to be one of the few beneficiaries as investors seek gold as quality assets. This may not happen any time soon, but it’s a good enough reason to hold gold as a prime quality asset in your portfolio.

In the meantime, look for gold to trade in the well-trodden territory as a stack of quality assets like US bond and the dollar battle it out for your safe-haven flows.

Currency markets

I get it that we’re a bit more cautious in Asia, especially given that we are closer to the epicenter of all the Covid-19 fears. Still, should Asia traders be 250 pips overly cautions given the broader collapse in USD-Asia (USDCNH) that transpired after handing the book over to London yesterday?

Still, I think running Asia currency risk based on global stock market performance, which is absent a bump in economic Asia sensitive cyclical stocks, doesn’t appear to make much sense given that local currency tail risk remains pretty fat. And while it makes sense to unwind some overextended long Asia weekend gamma hedges (or in my case getting stopped out on long USDCNH hedges at breakeven) given the typically robust convexity of regional currency sentiment to PBoC stimulus. However, views are immaterial to what price action suggests, and that is what we should trade on, not opinions.

Singapore dollar

Could the Sing dollar be the regional voice of reason as, despite the overnight collapse in the broader USD-Asia complex, the USDSGD remains bid around 1.3870 on local support?

Today Asia FX view 

As we enter the land of currency confusion, Asia FX markets continue to beat to a familiar drum. USDAsia remains better offered on the back of improved risk sentiment. This seems to be taking hold as hopes build that China will soon reopen for business, the Zhong Nanshan scenario holds, and as the PBoC policy guides us to risk parity nirvana. Time will tell if that view is correct.

As for G-10

Forty-eight hours is the typical duration for G-10 trends these days. When it comes to painting a dominant currency view, it feels that I’m confined to an empty windswept desert. Forget trend following, home run swings or break out trades, these types of market reward patience where bunts singles, doubles and mean reversion remain the trade calls of the day. I defer to my FX reversion algorithm, which doesn’t need a currency view for a trade of the day.

 

European Equities: A Catalyst is Going to be Needed for another High…

Economic Calendar:

Wednesday, 12th February 2020

Eurozone Industrial Production (MoM) (Dec)

Thursday, 13th February 2020

German CPI (MoM) (Jan) Final

Friday, 14th February 2020

German GDP (QoQ) (Q4) 1st Estimate

German GDP (YoY) (Q4) 1st Estimate

Spanish CPI (YoY) (Jan) Final

Spanish HICP (YoY) (Jan) Final

Eurozone GDP (QoQ) (Q4) 2nd Estimate

Eurozone GDP (YoY) (Q4) 2nd Estimate

Eurozone Trade Balance (Dec)

The Majors

It was a bullish day for the European majors on Tuesday, with a pickup in risk appetite reversing losses from the start of the week.

The DAX30 led the way, rising by 0.99%, with the EuroStoxx600 and CAC40 gaining 0.90% and 0.65% respectively. Tuesday’s gains led the EuroStoxx600 to a fresh all-time high on the day.

Sentiment had shifted ahead of the European open, with the Asian majors on the up as China returned to work following the extended break.

Fears of a wider spread of the coronavirus outside of China eased on the day, as the rate of infection slowed according to Monday’s figures.

The markets are now expecting a sizeable stimulus package to offset the effects of the outbreak on the Chinese economy.

The Stats

It was another particularly quiet day on the Eurozone economic calendar on Tuesday. There were no material stats to provide direction on the day.

From the U.S, economic data was limited to JOLTs job openings for December that had a muted impact on the European majors.

On the U.S economy, FED Chair Powell delivered his first of two days of testimony to Congress.

The FED Chair stated that the FED is closely monitoring the coronavirus and its effect on China’s economy and knock-on effects on global growth. Powell added that the U.S economy seemed resilient to global headwinds at present.

On the monetary policy front, Powell stated that the FED would stand pat should economic indicators support the resilient outlook.

The Market Movers

For the DAX: It was another mixed day for the auto sector. Daimler bucked the trend, falling by 0.92%. BMW and Continental rose by 0.49% and by 0.12% respectively, while Volkswagen rallied by 1.45% on the day.

Daimler saw red in response to its earnings release. Daimler announced a net loss of €11m for the 4th quarter, down from a net profit of €1.64bn from the 4th quarter of 2018. In a bid to preserve cash, Daimler also cut its dividend from €3.25 per share to €0.90 per share…

The results came off the back of news going into the week of the firm planning to cut up to 15,000 of its workforce.

It was a bullish day for the banks, however. Commerzbank rose by 1.16%, while Deutsche Bank rallied by 2.44% on the day.

Deutsche Lufthansa was amongst the top performers on the DAX, rallying by 2.54%.

From the CAC, it was also a bullish day for the banks. BNP Paribas led the way, rising by 2.11%, with Credit Agricole and Soc Gen up by 0.71% and by 0.83% respectively.

It was a mixed day for the French auto sector, however. Peugeot rose by 1.16%, while Renault fell by 0.70%.

Air France-KLM joined Lufthansa with a 4.93% rally on the day.

On the VIX Index

The VIX rose by 0.93% on Tuesday. Partially reversing a 2.78% fall from the previous day, the VIX ended the day at 15.2.

The upside came in spite of market fears of a widespread coronavirus pandemic abating off the back of the latest numbers. From China, the latest figures showed that the rate of infection had eased going into the week.

In reality, the spread continued beyond China’s borders, with FED Chair Powell also cautious over the possible impact of the virus on economic growth.

VIX 12/02/20 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. The Eurozone’s industrial production figures for December are due out later today.

Following some particularly disappointing numbers out of France, Germany, and Italy, there’s unlikely to be too much support from today’s numbers.

From the U.S, FED Chair Powell will deliver his 2nd day of testimony. Following Tuesday’s testimony, any surprises would have to come from the Q&A.

Following Tuesday’s upward swing, updates on the coronavirus will need to continue to show a slower pace of infection to ease market jitters further…

In the futures markets, at the time of writing, the DAX was down by 31.5 points, while the Dow was up by 26 points.

European Equities: Another Quiet Day Leaves the Coronavirus and FED Chair Powell Testimony

Economic Calendar:

Wednesday, 12th February 2020

Eurozone Industrial Production (MoM) (Dec)

Thursday, 13th February 2020

German CPI (MoM) (Jan) Final

Friday, 14th February 2020

German GDP (QoQ) (Q4) 1st Estimate

German GDP (YoY) (Q4) 1st Estimate

Spanish CPI (YoY) (Jan) Final

Spanish HICP (YoY) (Jan) Final

Eurozone GDP (QoQ) (Q4) 2nd Estimate

Eurozone GDP (YoY) (Q4) 2nd Estimate

Eurozone Trade Balance (Dec)

The Majors

It was a mixed start to the week for the European majors. The CAC40 and DAX30 falling by 0.23% and by 0.15% respectively, while the EuroStoxx600 eked out a 0.07% gain.

The losses on the day came in spite of the U.S majors finding support through the U.S session to hit fresh record highs.

For the European majors, the continued spread of the coronavirus weighed as news hit the wires of infections in Europe.

In China, 97 fatalities on Sunday alone took the death toll to 908, with the total number of infected in China hitting 40,171 on the weekend.

The continued spread and spike in fatalities on Sunday are expected to further affect the manufacturing sector.

The Stats

It was a particularly quiet day on the Eurozone economic calendar on Monday. There were no material stats to provide direction on the day.

The lack of stats gave industrial production figures out of Italy and the Eurozone’s Sentix Investor Confidence Index numbers influence.

In December, industrial production slumped by 2.7% month-on-month to leave production down by 4.3% year-on-year. Economists had forecast a 0.5% decline in the month and a 0.2% decline year-on-year.

From the Eurozone, the Sentix Investor Confidence Index came fell from 7.6 to 5.2. Economists forecast a fall to 4.1.

According to the Sentix Report,

  • While there was a clear upswing in the global economy, the outbreak of the coronavirus has changed the situation significantly.
  • Measures taken by the Chinese government to stop the spread show the danger to the economy if the outbreak cannot be contained.
  • The influence on the Eurozone index was relatively minor, however.
  • Germany’s Index fell by just 2.1 points. By contrast, the Asia ex-Japan index fell by a more significant 11.3 points.
  • Investors are finding comfort from strength in the U.S economy at the turn of the year. The Index had jumped from 0.7 to 7.6 in January before the minor pullback in February.

There were no material stats from the U.S to provide direction late in the session.

The Market Movers

For the DAX: It was a mixed day for the auto sector. Daimler bucked the trend on the day, rising by 0.20%. Bearish for the rest, BMW and Continental fell by 1.13% and by 0.97% to lead the way down, while Volkswagen saw a more modest 0.55% loss on the day.

Continental found support off the back of news hitting the wires that the company planned to cut as many as 15,000 jobs in an effort to cut costs.

It was a bearish day for the banks, however. Commerzbank and Deutsche Bank fell by 0.95% and by 0.88% respectively.

Deutsche Lufthansa continued to see red, falling by 0.57%.

From the CAC, it was also a bearish day for the banks. BNP Paribas fell by 0.37%, with Credit Agricole and Soc Gen falling by 0.33% and by 1.31% respectively.

Things were not much better for the French auto sector. Peugeot and Renault slid by 2.32% and by 1.95% respectively.

Air France-KLM joined Lufthansa in the red, falling by 0.52%.

On the VIX Index

It was back into the red at the start of the week, as the U.S majors hit fresh record highs. Partially reversing a 3.41% gain from Friday, the VIX fell by 2.78% to end the day at 15.0.

There were no material stats to provide direction, with positive sentiment towards the U.S economy weighing on the VIX.

For now, the U.S equity markets suggest that the U.S economy is more shielded from the likely impact of the coronavirus than Europe…

VIX 11/02/20 Daily Chart

The Day Ahead

It’s another particularly quiet day on the Eurozone economic calendar. There are no material stats due out of the Eurozone to provide the majors with direction.

From the U.S, the JOLTs job openings are unlikely to influence following last week’s NFP numbers.

FED Chair Powell’s semi-annual testimony to Congress will garner plenty of attention, however. Economic data from the U.S has supported a more upbeat outlook. How Powell views the impact of the coronavirus on the U.S and global economies will be of interest… If the equity markets are anything to go by, investors don’t feel that the U.S will feel the effects of the virus on the economy…

Ahead of Powell’s testimony, ECB President Lagarde is also scheduled to speak. She has not been too upbeat about the Eurozone economy…

Expect the continued negative news on the coronavirus to limit any upside in the European majors. News hit the wires in the early hours of the death toll rising to beyond 1,000.

There was some support early in the day as China returned to work. The extent of the damage to the economy remains unknown, however, as the virus continues to spread.

In the futures markets, at the time of writing, the DAX was up by 95 points, with the Dow up by 57 points.