European Equities: Eurozone Inflation and U.S Jobless Claims in Focus

Economic Calendar

Thursday, 20th January

German PPI (MoM) (Dec)

Eurozone Core CPI (YoY) (Dec) Final

Eurozone CPI (YoY) (Dec) Final

Eurozone CPI (MoM) (Dec) Final

The Majors

It was a bullish day for the European majors on Wednesday. The CAC40 rose by 0.55%, with the DAX and the EuroStoxx600 ending the day with gains of 0.24% and 0.23% respectively.

Economic data was on the lighter side on the day, with key stats limited to finalized inflation figures from Germany. The lack of stats left the majors under pressure, with market angst over FED monetary policy remaining a key driver.

The upside on the day came in spite of the U.S equity markets continuing their decline amidst rising U.S Treasury yields.

The Stats

In December, German consumer prices rose by 0.5%, which was in line with prelim figures. Consumer prices had fallen by 0.2% in the month of November.

According to Destatis,

  • In December, the annual rate of inflation picked up from 5.2% to 5.3%, which was in line with forecasts.
  • The annual average rate of inflation was 3.1% compared with 2020, which was also in line with forecasts.

Reasons for High Inflation Rate in 2021 on 2020

  • A temporary reduction of value added tax rates in the 2nd half of 2020 and a sharp decline in mineral oil product prices in the previous year reportedly had an upward effect.
  • More and more crisis-related effects, such as delivery bottlenecks and marked price increase at upstream stages in the economic process.

Prices of Energy Products up on an Annual Average in 2021

  • The prices of energy products were up by 10.4% in 2021 year-on-year.
  • In 2020, prices of energy products had fallen by 4.8%.

Other Contributory Factors

  • Food prices rose 3.2% in 2021 compared with 2020.
  • Prices of goods increased by 4.3%, while service prices increased by just 2.1%.

From the U.S

Stats were limited to housing sector numbers that had a muted impact on the majors.

The Market Movers

For the DAX: It was another mixed day for the auto sector on Wednesday. Volkswagen rose by 0.62% to buck the trend. Continental and BMW fell by 1.51% and by 1.09% respectively, with Daimler ending the day down by 0.19%.

It was also a mixed day for the banks. Deutsche Bank fell by 1.19%, while Commerzbank ended the day up by 0.41%.

From the CAC, it was a bearish day for the banks. Soc Gen slid by 1.89%, with Credit Agricole and BNP Paribas seeing losses of 0.94% and 0.92% respectively.

The French auto sector had a bullish session, however. Stellantis NV and Renault ended the day up by 0.23% and 0.50% respectively.

Air France-KLM slid by 3.44%, with Airbus SE declining by 0.66%.

On the VIX Index

It was a second consecutive day in the green for the VIX on Wednesday.

Following an 18.76% surge on Tuesday, the VIX rose by 4.65% to end the day at 23.85.

The NASDAQ slid by 1.15%, with the Dow and the S&P500 seeing losses of 0.96% and 0.97% respectively.

VIX 200122

The Day Ahead

It’s a relatively busy day ahead on the Eurozone’s economic calendar. Finalized Eurozone inflation figures for December are due out along with German wholesale inflation figures. With inflation a key area of focus, expect the numbers to draw attention.

Later in the day, U.S weekly jobless claims and Philly FED Manufacturing numbers for January will also provide direction.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 42 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: A Quiet Economic Calendar Leaves Crude Oil and FED Policy in Focus

Economic Calendar

Wednesday, 19th January

German CPI (MoM) (Dec) Final

Thursday, 20th January

German PPI (MoM) (Dec)

Eurozone Core CPI (YoY) (Dec) Final

Eurozone CPI (YoY) (Dec) Final

Eurozone CPI (MoM) (Dec) Final

The Majors

It was a particularly bearish day for the European majors on Tuesday. The DAX slid by 1.01%, with the CAC40 and the EuroStoxx600 ending the day with losses of 0.94% and by 0.97% respectively.

Economic data took a back seat on Tuesday, with rising U.S Treasury yields weighing heavily on riskier assets. Market sentiment towards FED monetary policy and the path of interest rates drove yields higher on the day. A sharp increase in crude oil prices added to the market angst on the day. Tech stocks took a big hit as the U.S markets reopened following Monday’s holiday.

The Stats

ZEW Economic Sentiment figures for Germany and the Eurozone were in focus early in the European session.

In January, Germany’s ZEW Economic Sentiment Index jumped from 29.9 to 51.7. Economists had forecast an increase to 32.0. The Eurozone Economic Sentiment Index also impressed, rising from 26.8 to 49.4. Economists had forecast a rise to 29.2.

For Germany, the ZEW Current Conditions Index disappointed, however, falling from -7.4 to -10.2. Economists had forecast a more modest decline to -8.5.

From the U.S

NY Empire State Manufacturing Index slid from 31.9 to -0.70 in January. Economists had forecast a decline to 25.70.

According to the January Survey,

  • New orders took a hit, with the new orders index falling 32 points to -5.0.
  • The shipments index fell to 1.0, while the delivery times index held steady at 21.6, pointing to a continued lengthening amidst ongoing supply chain disruptions.
  • On the inflation front, the prices paid index slipped by 4 points to 76.7, with the prices received index down 8 points to 37.1. Both remained elevated and pointed to “ongoing substantial increases in both input and selling prices”.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Monday. Daimler rose by 0.51% to buck the trend. f Continental slid by 1.83%, however, with BMW and Volkswagen ending the day down by 0.08% and by 1.07% respectively.

It was also a bearish day for the banks. Deutsche Bank and Commerzbank declined by 0.77% and by 0.69% respectively.

From the CAC, it was a bearish day for the banks. Credit Agricole fell by 0.44%, with Soc Gen and BNP Paribas seeing losses of 0.09 and 0.06% respectively.

The French auto sector also had a bearish session. Stellantis NV and Renault ended the day down by 0.54% and by 0.79% respectively.

Air France-KLM and Airbus SE fell by 1.09% and by 0.75% respectively.

On the VIX Index

It was back into the green for the VIX on Tuesday.

Reversing a 5.51% fall from Friday, the VIX surged by 18.76% to end the day at 22.79.

The NASDAQ tumbled by 2.60%, with the Dow and the S&P500 seeing losses of 1.51% and 1.84% respectively.

VIX 190122 Daily Chart

The Day Ahead

It’s a quieter day ahead on the Eurozone’s economic calendar. Finalized German inflation figures for December are due out going into the European open. Barring any marked revisions from prelim, however, we don’t expect the numbers to influence.

From the U.S, housing sector data for December, due out late in the European session, should also have a muted impact on the majors.

The markets will be tracking U.S Treasury yields and crude oil prices for direction.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 52 points.

For a look at all of today’s economic events, check out our economic calendar.

Portfolio Hedging in Action Using the ProShares Short S&P 500 ETF

While I am no advocate of a market crash in a context where the economic recovery remains on track and unemployment numbers have dropped to their lowest since February 2020, I certainly have in mind that the highest inflation reading in nearly 40 years has raised the probability of occurrence of stock market volatility in 2022.

In this scenario, risk limitation to financial assets in the form of a hedging strategy is important, especially when investors have patiently built their portfolio over the years, and want to remain invested in equities. In this respect, there are many ways to hedge including treasury bonds and commodities ETF as well as derivatives, such as options and futures contracts.

In this thesis, I consider a hedging tool that involves taking an opposite position to a related asset and which worked during two of the most recent market crashes, namely the 2008-2009 great financial crisis and the 2020 Covid-related downturn. This tool is the ProShares Short S&P 500 ETF (SH) and it inversely tracks the broader stock market or the S&P 500. For investors, it is important to test its efficacy and show how it actually works using the SPDR S&P 500 ETF (SPY).

Testing SH’s efficacy to provide inverse market correlation

When SPY which straightly replicates the gains or losses of the S&P 500 plunged by more than 45% from 2008 to 2009, the ProShares fund conversely managed to gain more than 30%. This is shown in the chart below. Subsequently, when SPY lost 50% from Jan to March 2020, SH gained 25%. These two events are illustrated in the chart below and show the ability of the market shorting tool to provide inverse correlation to the broader market.

Source: Trading View

Pursuing further, some of you would have noticed that SH’s returns are not -1x or exactly the inverse of SPY. The reason for this discrepancy is due to the compounding effect which adversely impacts the performance of leveraged ETFs like SH, whereby the returns are significantly different than the target return for periods that exceed one day. It is for this reason that the fund managers at ProShares advise investors to monitor holdings frequently, preferably on a daily basis.

Being more specific, items to monitor are the performance of SPY itself, which if on a consistent uptrend has the potential to inversely cause a significant downside in SH’s share price, and by ricochet trim the gains one expects to obtain when shorting the market does not proceed as expected. Along the same lines, failure to monitor will certainly result in capital losses as evidenced by SH’s downtrend (blue chart) since inception in 2007 by nearly minus 90% (-90%). Thus, contrarily to SPY which is a long-term investment, SH is a market shorting tool that enables investors to benefit from a downturn without having to trim down their equity portfolio. This explanation would be incomplete without seeing hedging in action using a sample portfolio.

Illustrating how hedging works with a sample portfolio

For illustration purposes, I consider a $10,000 investment in equities made through shares of the SPY. This could form part of a 70/30 portfolio, with 70% equity and 30% fixed income.

The first scenario (scenario 1) which is un-hedged entailed a loss of $4,500 during the 2008-2009 great financial crash as SPY lost 45% on an investment of $10K. Next, the second scenario depicts the same time period but, this time with the application of a hedge in the form of a $1000 investment in SH, or 10% of the equities portfolio. As a result, $9000 was invested in SPY and the losses were reduced to $3,750.This excludes ProShares’ expense ratio of 0.88%, which make up for only $8.8 on a $1,000 investment. Ultimately, this shows that hedging using the ProShares ETF actually works. Now, the percentage at which a portfolio is hedged can vary, with 5% and 15% hedges being quite common.

Source: Prepared by author.

Pursuing further, I have provided two other scenarios for an un-hedged and hedged portfolio respectively and this time pertaining to the March 2020 market crash. Again, even after excluding ProShares’ fees which is minimal, hedging, as a damage limitation mechanism works, but, it is essential to monitor the performance for the period the market is shorted. For this matter, there is the need for “optimum timing” for entering and exiting a position in SH in order to capture the “best case” impact of the hedge.

On a cautionary note, bear in mind that historical performance is not a guarantee of future success and that each time it a different hedging scenario.

Finally, given high inflation with a CPI of above 7% and the CBOE S&P 500 Volatility Index (VIX) hovering between 19 and 20, the risk factors are certainly here.

Disclosure: This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: Economic Data from China to Set the Tone ahead of the European Open

Economic Calendar

Monday, 17th January

Italy CPI (MoM) (Dec) Final

Tuesday, 18th January

German ZEW Current Conditions (Jan)

German ZEW Economic Sentiment (Jan)

Eurozone ZEW Economic Sentiment (Jan)

Wednesday, 19th January

German CPI (MoM) (Dec) Final

Thursday, 20th January

German PPI (MoM) (Dec)

Eurozone Core CPI (YoY) (Dec) Final

Eurozone CPI (YoY) (Dec) Final

Eurozone CPI (MoM) (Dec) Final

The Majors

It was a bearish end to the week for the European majors on Friday. The EuroStoxx600 slid by 1.01%, with the CAC40 and the DAX30 ending the day with losses of 0.81% and by 0.93% respectively.

Following some particularly hawkish chatter from FOMC members on Thursday, disappointing economic data from the Eurozone and the U.S weighed. Adding to the bearish mood was a negative outlook from JPMorgan Chase. Corporate earnings results from the U.S. Citi, JPMorgan Chase, and Wells Fargo were due out on the day.

Ahead of the European open, economic data from China had been upbeat but not enough to support the majors throughout the session.

In December, China’s USD trade surplus widened from $71.71bn to $94.46bn, with exports up 20.9% year-on-year.

The Stats

It was a busier day on the Eurozone economic calendar. Finalized inflation figures for France and Spain were in focus along with trade data for the Eurozone.

French inflation

France’s annual rate of inflation held steady at 2.8% in December, which was in line with prelim figures.

Month-on-month, consumer prices increased by 0.2% after having risen by 0.4% in November, which was in line with prelim figures.

According to Insee.fr,

  • Energy prices fell by 0.9%, month-on-month, after having risen by 1.5% in November.
  • The prices of services were up 0.4% versus 0.2% in November and food prices were up 0.5% versus 0.4% in the month prior.
  • Year-on-year, core inflation was up 2.0%, however, which was up from 1.7% in November.
    • Prices for manufactured goods were up 1.2% versus 0.8% in November.
    • Food prices rose by 1.4% after a 0.5% in November.

Spanish Inflation

Spain’s annual rate of inflation accelerated from 5.5% to 6.5%, which was down from a prelim 6.7%.

Eurozone Trade

In November, the Eurozone’s goods trade balance narrowed from €3.3bn surplus to €1.5bn deficit versus a forecasted €7.6bn surplus.

According to Eurostat,

  • Euro area exports of goods to the rest of the world increased by 14.4% to €225.1bn, compared with Nov-2020.
  • Imports from the rest of the world were up 32% to €226.6bn, compared with Nov-2020.
  • The rise in imports was as a result of an increase in the value of energy imports.
  • In Nov-2020, the Eurozone had a €25bn surplus.
  • The last time the Eurozone recorded a deficit was in Jan-2014.
  • Intra-euro area trade rose to €204.3bn in Nov-2021, up by 22.1% compared with Nov-2020.

From the U.S

Retail sales and consumer sentiment figures were the key U.S stats of the day, with the stats skewed to the negative.

In December, U.S core retail sales slid by 2.3% versus a forecasted 0.2% rise. Core retail sales had risen by just 0.1% in November. Retail sales fell by 1.9% versus a forecasted 0.1% decline. In November, retail sales had risen by 0.2%.

According to prelim figures, the Michigan Consumer Sentiment Index fell from 70.6 to 68.8% in January. Economists had forecast a fall to 70.0. The Consumer Expectations Index slid from 68.3 to 65.9.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Friday. Continental and Daimler fell by 0.14% and by 0.85% respectively. BMW and Volkswagen ended the day up by 0.30% and by 1.60% respectively.

It was a bearish day for the banks, however. Deutsche Bank and Commerzbank fell by 2.02% and by 1.51% respectively.

From the CAC, it was also a bearish day for the banks. Soc Gen slipped by 0.03%, with Credit Agricole and BNP Paribas seeing losses of 0.86% and 0.99% respectively.

The French auto sector had a bearish session. Stellantis NV and Renault ended the day down by 0.19% and by 1.00% respectively.

Air France-KLM fell by 1.49%, while Airbus SE ended the day up by 0.03%.

On the VIX Index

It was back into the red for the VIX on Friday, marking a 3rd loss of the week.

Partially reversing a 15.27% surge from Thursday, the VIX fell by 5.51% to end the day at 19.19.

The Dow fell by 0.56%, while the NASDAQ and the S&P500 saw gains of 0.59% and 0.08% respectively.

VIX 170122 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone’s economic calendar. Finalized December inflation figures from Italy will be in focus. Barring any marked revisions from prelim figures, however, the stats should have a muted impact on the majors.

Ahead of the European open, 4th quarter GDP numbers from China will set the tone. Other stats from China later this morning will include fixed asset investment, industrial production, and retail sales figures. Expect some interest in the industrial production figures.

With the U.S markets closed today, there are no stats from the U.S to influence late in the European session.

European Equities: A Week in Review – 14/01/22

The Majors

It was a bearish week for the European majors in the week ending 14th January.

The DAX30 slipped by 0.40%, with both the CAC40 and EuroStoxx600 the ending the week down by 1.05% respectively.

It was a choppy week for the global equity markets, with market sentiment towards FED monetary policy the key driver in the week.

Early in the week, FED Chair Powell testimony had pointed to just 3 rate hikes for the year to curb inflationary pressure. December inflation figures from the U.S on Wednesday, however, left FOMC hawks to take a more hawkish stance later in the week.

A number of FOMC members talked of the need for 4 rate hikes, leading to a tech sell-off late in the U.S session on Thursday. The negative sentiment filtered through to the European majors on Friday, leaving the majors in the red for the week.

Economic data from the Eurozone largely took a back seat in the week.

The Stats

Key stats included Eurozone unemployment, industrial production, and trade data for November.

The stats were skewed to the positive. The Eurozone’s unemployment rate fell from 7.3% to 7.2%, with industrial production up 2.3% in the month. Production had fallen by 1.3% in October.

Trade data was market negative, however, while finalized inflation figures for France and Spain had a muted impact on the majors. The Eurozone’s trade balance narrowed from a €3.3bn surplus to a €1.5bn deficit in November. It was the Eurozone’s first goods trade deficit since January 2014.

From the ECB, the Economic Bulletin sent mixed signals, while suggesting that inflation was more than just transitory.

From the U.S

It was a big week for the Dollar. In the first half of the week, FED Chair Powell testimony and December inflation figures were key drivers.

While the FED Chair talked of the need to hike rates, there was no mention of the need for more than 3 this year. This was taken as a positive for the riskier assets and negative for the Dollar.

On Wednesday, another spike in inflation failed to spook the markets. This was in spite of the U.S annual rate of inflation at its highest since 1982. An easing in energy prices for the first time since the uptrend was taken as a sign of a possible topping out.

Jobless claims failed to impress on Thursday, with initial jobless claims increasing from 207k to 230k in the week ending 7th January.

Retail sales figures for December wrapped things up on Friday. In December, retail sales fell by 1.9% versus a forecasted 0.1% decline. Core retail sales tumbled by 2.3% versus a forecasted 0.2% rise.

The Market Movers

From the DAX, it was a mixed week for the auto sector. BMW and Volkswagen rallied by 3.89% and by 2.86% respectively to lead the way, with Daimler rising by 1.67%. Continental bucked the trend, however, with a 0.04% loss.

It was a bearish week for the banking sector. Deutsche Bank and Commerzbank slid by 3.33% and by 5.47% respectively.

From the CAC, it was a bullish week for the banks. Soc Gen rallied by 3.13%, with BNP Paribas and Credit Agricole ending the week with gains of 2.79% and 2.38% respectively.

The French auto sector also had a bullish week. Stellantis NV and Renault rallied by 5.43% and by 4.03% respectively.

Air France-KLM ended the week down by 1.65%, with Airbus falling by 0.31%.

On the VIX Index

It was a 2nd consecutive week the green for the VIX in the week ending 14th January, marking a 6th rise in 9-weeks.

Following an 8.94% gain from the previous week, the VIX rose by 2.29% to end the week at 19.18.

2-days in the green from 5 sessions, which included a FOMC member driven 15.28% jump on Thursday, delivered the upside.

For the week, the Dow fell by 0.88%, with the NASDAQ and the S&P500 ending the week down by 0.28% and by 0.30% respectively.

VIX 150122 Weekly Chart

The Week Ahead

It’s quieter week ahead on the Eurozone economic calendar. Early in the week, ZEW Economic Sentiment figures for Germany and the Eurozone will be in focus. We’ve seen plenty of sensitivity to the numbers of late.

The focus will then shift to finalized inflation figures for member states and the Eurozone and Eurozone consumer confidence figures.

On the monetary policy front, the ECB monetary policy meeting minutes will also draw plenty of interest. The markets are expecting to see a shift in stance on interest rates to curb inflation.

From the U.S, Philly FED Manufacturing and weekly jobless claims figures will be the key stats of the week. Expect another jump in jobless claims to test support for riskier assets…

Ahead of the European open on Monday, economic data from China will set the tone, however, 4th Quarter GDP numbers, along with industrial production and retail sales figures for December will be key.

Away from the Economic Calendar

News updates on COVID-19 will need continued monitoring. While the markets have accepted the less severe Omicron strain, any news of a new strain would weigh on the majors. There are also corporate earnings to draw attention in the week.

European Equities: Economic Data, ECB President Lagarde, and U.S Earnings in Focus

Economic Calendar

Friday, 14th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

ECB President Lagarde Speaks

The Majors

It was a mixed day for the European majors on Thursday. The DAX30 rose by 0.13%, while the CAC40 and the EuroStoxx600 ended the day with losses of 0.50% and by 0.05% respectively. It was a 3rd consecutive day in the green for the DAX30.

From the Eurozone, the ECB’s Economic Bulletin delivered more uncertainty following the latest spike in U.S inflation. Upward revisions to inflation and downward revisions to growth forecasts were market negative.

Economic data from the U.S also disappointed, with jobless claims unexpectedly rising in the week ending 7th January.

The Stats

There were no major stats from the Eurozone for the markets to consider, leaving the ECB Economic Bulletin in focus.

The ECB Economic Bulletin

Salient points from today’s Economic Bulletin included:

  • Global economy remains on a recovery path, although persisting supply bottlenecks, rising commodity prices, and Omicron weigh on near-term growth prospects.
  • Recent surveys suggest that growth momentum remained weak at the start of Q4.
  • While the euro area economy continues to recover, growth is also moderating.
  • Activity is expected to pick up strongly om the course of the year, however.
  • Output should exceed pre-pandemic levels in Q1 of 2022.
  • While supply chain bottlenecks persist, these should ease during 2022.

Growth

  • Projections are for annual growth of 5.1% in 2021, 4.2% in 2022, 2.9% in 2023, and 1.6% in 2024. Compared with September forecasts, 2022 growth was revised down, while 2023 growth was upwardly revised.

Inflation

  • Inflation will remain above 2% for most of 2022 and is expected to remain elevated in the near-term.
  • The ECB expects energy prices to stabilize, consumption patterns to normalize, and price pressures stemming from global supply bottlenecks to subside this year.
  • December annual inflation forecasts were 2.6% in 2021, 3.2% in 2022, and 1.8% in 2023 and 2024. These were materially higher than September projections.

From the U.S

Wholesale inflation figures were in focus following consumer inflation figures from Wednesday along with jobless claims.

In the week ending 7th December, initial jobless claims rose from 207k to 230k. Economists had forecast a fall to 200k.

On the inflation front, the producer price index rose by just 0.2% in December versus a forecasted 0.4% increase. In November, the index had risen by 1.0%. The Core producer price index rose by 0.5% after having risen by 0.9% in November. Economists had forecast a 0.5% increase.

The annual wholesale rate of inflation softened from 9.8% to 9.7% in December.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Thursday. Continental and Daimler led the way, with gains of 2.73% and 2.74% respectively. BMW and Volkswagen ended the day up by 1.61% and by 0.92% respectively.

It was a mixed day for the banks, however. Deutsche Bank fell by 0.20%, while Commerzbank rose by 1.15%.

From the CAC, it was a bullish day for the banks. Credit Agricole rose by 0.77%, with Soc Gen and BNP Paribas rallying by 2.18% and by 2.50% respectively.

The French auto sector also had a bullish session. Stellantis NV rose by 2.62%, with Renault jumping by 4.58%.

Air France-KLM rose by 0.86%, while Airbus SE ended the day down by 1.16%.

On the VIX Index

It was back into the green for the VIX on Thursday, marking just a 2nd rise in 6 sessions.

Reversing a 4.29% fall from Wednesday, the VIX surged by 15.27% to end the day at 20.31.

The NASDAQ tumbled by 2.51%, with the Dow and the S&P500 seeing losses of 0.49% and 1.42% respectively.

VIX 140122 Daily Chart

The Day Ahead

It’s a busier day ahead on the Eurozone’s economic calendar. Finalized December inflation figures from Spain and France are due out along with trade data for the Eurozone. Barring marked revisions to the prelim figures, expect the Eurozone’s trade data to have a greater influence.

On the monetary policy front, ECB President Lagarde is also scheduled to speak. The markets will be looking for any guidance on inflation and monetary policy.

Later in the session, U.S retail sales will also be key. An unexpected slide in consumption could question the FED’s views on the economic outlook. Earlier in the day, trade data from China will set the tone.

Away from the economic calendar, U.S corporate earnings will also be a key driver. Citi, JPMorgan Chase, and Wells Fargo are scheduled to release earnings results today.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 39 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: ECB Economic Bulletin and Member Chatter in Focus along with U.S Stats

Economic Calendar

Thursday, 13th January

ECB Economic Bulletin

Friday, 14th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

ECB President Lagarde Speaks

The Majors

It was another bullish day for the European majors on Wednesday. The CAC40 rose by 0.75%, with the DAX30 and the EuroStoxx600 gaining 0.43% and by 0.64% respectively. A 2nd consecutive day in the green reversed the losses from Monday.

Economic data from the Eurozone provided early support, with industrial production up by more than expected. The area of focus on the day, however, was U.S inflation. In December, the U.S annual rate of inflation accelerated to 7.0%, which was the largest increase since June 1982.

In spite of the pickup in inflationary pressure, comments from FED Chair Powell’s testimony resonated on the day. While the FED Chair had talked of the need to lift rates, he had not talked of the need for more than had been projected in the FOMC economic projections.

The Stats

It was another quiet day on the Eurozone economic calendar, with Eurozone industrial production figures in focus.

Industrial Production

In November, Eurozone industrial production increased by 2.3% versus a forecasted 0.5% rise. Production had fallen by 1.3% in October.

According to Eurostat,

  • Production of non-durable consumer goods rose by 3.2%, capital goods by 1.5%, and energy by 1.2%.
  • There was also a 0.9% increase in the production of intermediate goods, while durable consumer goods production fell by 0.2%.
  • By member state, Ireland (+37.3%) recorded the largest monthly increase.
  • Belgium (-4.4%), Malta (-3.7%), and Luxembourg (-2.3%) recorded the largest declines, however.
  • Year-on-year, industrial production was down by 1.5% in the euro area.

From the U.S

Inflation figures were in focus following FED Chair Powell’s testimony on Tuesday.

According to the U.S Bureau of Labor Statistics, consumer prices rose by 0.5% month-on-month versus a forecasted 0.4% rise. Consumer prices had risen by 0.8% in November. More significantly, the core annual rate of inflation accelerated from 4.9% to 5.5%. Economists had forecast a core annual rate of inflation of 5.4%.

Month-on-month, core consumer prices increased by 0.6% versus a forecasted 0.5% rise. In November, core consumer prices had risen by 0.5%.

Increases in the indexes for shelter and for used car and trucks were reportedly the largest contributors to the all-items index. By contrast, the energy index declined, ending an extended series of increases.

The Market Movers

For the DAX: It was another mixed day for the auto sector on Wednesday. Daimler rose by 1.21% to buck the trend on the day. Continental and BMW ended the day down by 1.40% and by 0.58% respectively, with Volkswagen slipping by 0.03%.

It was also a mixed day for the banks. Deutsche Bank fell by 0.73%, while Commerzbank rose by 1.07%.

From the CAC, it was a bullish day for the banks. Credit Agricole rallied 2.15%, with Soc Gen and BNP Paribas ending the day up by 1.31% and by 1.51% respectively.

The French auto sector had another mixed session. Stellantis NV rose by a further 2.08%, while Renault slid by 3.56%.

Air France-KLM fell by 2.21%, while Airbus SE saw modest 0.22% gain on the day.

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Wednesday.

Following a 5.10% fall on Tuesday, the VIX declined by 4.29% to end the day at 17.62.

The Dow rose by a modest 0.11%, with the NASDAQ and the S&P500 seeing gains of 0.23% and 0.28% respectively.

VIX 130122 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone’s economic calendar. There are no material stats due out of the Eurozone to provide direction. While there are no stats, the ECB Economic Bulletin will draw interest early in the session. On the monetary policy front, ECB members De Guindos, Hakkarainen, and Elderson are scheduled to speak. The market focus will be on the economy, inflation, and any shift in policy to curb inflation.

Later in the session, U.S wholesale inflation and jobless claims figures will also be key, however.

For a look at all of today’s economic events, check out our economic calendar.

SPXU: Harnessing Volatility in The S&P 500, to Short the Market With a Three Times Inverse ETF

Fed Chairman’s Powell reassuring statement on Tuesday and inflation figures for 2021 being in line with estimates on Wednesday seem to have appeased bearish sentiments resulting in the S&P 500 rising.

However, there are many different elements that are likely to impact stocks, such as the continuation of the economic recovery, corporate earnings, inflation, supply chain concerns as well as the likelihood of the Omicron variant stressing hospital services. These should result in continued volatility episodes as seen in the S&P 500 ETF Trust ETF (SPY) which tracks the S&P 500 index.

https://static.seekingalpha.com/uploads/2022/1/12/49663886-16420000045920553.png

Source: fxempire.com

In such conditions, people are normally risk-averse, or avoid trading and prefer to wait for some relative calm before looking at stocks. This is the case for most of us, but, there is another option which is to trade the volatility using a tool like the ProShares UltraPro Short S&P500 (SPXU) which inversely tracks S&P 500 at -3 times its daily performance.

This calls for enticing gains as a 5% fall in the SPY can “theoretically” bring you 15% gains, but my own experience has taught me that just putting money in the SPXU at the first sign of a market downturn is unproductive. Instead, I use the chart below which shows the performance of the ProShares ETF from January 2020 to date. It includes the spring 2020 crash subsequent to the World Health Organization declaring Covid to be a pandemic.

Investors will notice that I have calculated the amplitude obtained by subtracting SPXU’s daily low from the daily high. Then I converted the resulting value as a percentage that more vividly represents the volatility induced in the ProShares ETF’s through its daily variations.

Here, the March (spring) 2020 crash resulted in gains of over 30% but this was achieved over a period of many weeks. The second noteworthy point is the above-10% differences which, after occurring four times from June 2020 to February 2021, ceased till November last year.

https://static.seekingalpha.com/uploads/2022/1/12/49663886-16420000046728988.png

Source: Chart built by author with data from finance.yahoo.com

Then, came the December 1 market downturn, induced mostly by tech stock aversion, as investors increasingly rotated into value names. To be realistic, this high-volatility episode may prove to be a lone occurrence, but forthcoming events should constitute catalysts for further fluctuations.

First, the earnings season is to be kicked off by banks on Friday this week, and with investors having already placed a lot of expectations on the financial sector as the main beneficiary of the economic recovery and this, thanks to rising interest rates allowing an increase in net interest margins on loans.

This expectation may suffer if megabanks like JPMorgan Chase (JPM) Citigroup (C) and Wells Fargo (WFC) fail to provide any upside surprises in their fourth-quarter earnings reports. Others like the Bank of America (BAC) and Morgan and Stanley (MS) will follow suit. Then, it will be the turn of the big techs with Microsoft (MSFT) on Jan 25 and Apple (APPL) on Jan 29, with analysts being keen to observe for any effects caused by the semiconductor supply crunch.

Second, there is the VIX (Volatility indicator) also referred to as the “index of fear” whose methodology is based on the stocks forming part of the S&P 500. Higher is the VIX, more are volatility risks, and from its high of 35, the indicator is currently at around 18. Given that this figure is far from the VIX’s above- 85 spike during the spring 2020 market crash, a major downside does not seem imminent, but a near-20 value signifies that volatility is persisting.

This signifies that we are in an environment conducive for gains through the SPXU.

Pursing on a cautionary note, I deliberately used the word theoretically above when mentioning possible gains with the SPXU. In this case, a 5% loss in the SPY will not convert into a 15% gain in the SPXU as some percentage points will be lost due to the compounding effect which is a specific feature of highly leveraged ETFs. The net gain will ultimately depend on the degree of fluctuations (volatility) during the trading period. This discrepancy is evident in the one-week performance chart below where a -1.39% loss of the SPY has not translated into a 4.17% (1.39 x 3) gain in the SPXU, but only a 4.15% gain.

https://static.seekingalpha.com/uploads/2022/1/12/49663886-164200000530492.png

Source: Trading View

Considering the long term, due to the leverage, the ProShares fund has delivered a 55% loss and thus, a buy-and-hold strategy is to be avoided, and it is preferable to use this market shorting tool for the least amount of time possible, preferably one day as per the prospectus. This said I have held it for up to five days after gaining some experience selling it at a loss due to the unpredictability of the market. Looking at portfolio protection, some investors also use the SPXU as a hedging tool to gain from a falling S&P 500. Thus, by hedging, these investors hold on to their stocks instead of passively selling them and taking profit in the expectation of an elusive market crash.

Finally, my advice is to wait for the VIX to go above 20 before placing your bet, and this should happen this week or the next. Also, patience, rigorous monitoring and being prepared to exit with a loss are key ingredients for shorting the market.

Disclosure: I/We are long Apple. This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

European Equities: U.S Inflation the Key Driver Following Powell’s Testimony

Economic Calendar

Wednesday, 12th January

Eurozone Industrial Production (MoM) (Nov)

Friday, 14th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

ECB President Lagarde Speaks

The Majors

It was a bullish day for the European majors on Tuesday. The DAX30 rallied by 1.10%, with the CAC40 and the EuroStoxx600 rising by 0.95% and by 0.84% respectively. Tuesday’s gains brought to an end a 3-day losing streak.

A quiet economic calendar left the majors in the hands of ECB President Lagarde and FED Chair Powell. Market jitters over persistent inflationary pressure and possible influence on monetary policy has tested support for riskier assets at the turn of the year.

Away from the economic calendar, earnings were back in focus, with optimism of another upbeat season adding to the upside. The gains were not enough to fully reverse Monday’s sell-off, however, as the markets await U.S inflation figures due out today and tomorrow.

The Stats

There were no major stats for the markets to consider. In spite of the anticipation, there were no policy related comments from the ECB President to influence.

From the U.S

There were also no major stats from the U.S to provide the majors with direction late in the day. The lack of stats left the spotlight on FED Chair Powell, who gave testimony to lawmakers.

Market reaction to testimony was positive, with the FED Chair stating that the economy can cope with the tightening monetary policy. Powell noted that the economy has expanded rapidly in spite of COVID-19. On the inflation front, Powell said that inflation needs more attention. The FED will ensure that high inflation does not become entrenched. Powell also noted that, while a move on monetary policy to normal is needed, it’s a long road to normal.

The Market Movers

For the DAX: It was another mixed day for the auto sector on Tuesday. Continental and Daimler ended the day down by 0.59% and by 0.70% respectively. BMW rose by 0.84%, however, with Volkswagen gaining 0.33%.

It was a bearish day for the banks. Deutsche Bank fell by 0.48%, with Commerzbank sliding by 4.12%.

From the CAC, it was a mixed day for the banks. Credit Agricole slipped 0.19%, while Soc Gen and BNP Paribas ended the day up by 0.20% and by 0.56% respectively.

The French auto sector also had a mixed session. Stellantis NV rallied by 2.09%, while Renault ended the day with a 1.26% loss.

Air France-KLM and Airbus SE saw modest gains of 0.26% and by 0.42% respectively.

On the VIX Index

It was back into the red for the VIX on Tuesday. Reversing a 3.41% gain from Monday, the VIX fell by 5.10% to end the day at 18.41.

The NASDAQ rallied by 1.41%, with the Dow and the S&P500 seeing gains of 0.51% and 0.92% respectively.

VIX 120122 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone’s economic calendar. Industrial production figures for the Eurozone will be in focus through the early part of the European session. The November figures are unlikely to influence the ECB’s views on inflation and monetary policy, however, which should limit the impact on the majors.

Later in the session, U.S inflation figures for December will be key. Expect plenty of market sensitivity to the numbers, Softer inflation would be the ideal scenario for the markets after Powell’s testimony to lawmakers.

Inflation figures from China, due out ahead of the European open, will likely set the tone.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 10 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: ECB President Lagarde and FED Chair Powell in Focus

Economic Calendar

Tuesday, 11th January

ECB President Lagarde Speaks

FED Chair Powell Testimony

Wednesday, 12th January

Eurozone Industrial Production (MoM) (Nov)

Friday, 14th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

ECB President Lagarde Speaks

The Majors

It was a bearish start to the week for the European majors on Monday. The DAX30 fell by 1.13%, with the CAC40 and the EuroStoxx600 sliding by 1.44% and by 1.48% respectively.

Upbeat economic data from the Eurozone failed to provide support, with market jitters over FED monetary policy weighing. News of Goldman Sachs projecting the FED to lift rates 4 times this year added to the market angst.

The Goldman Sachs projections came ahead FED Chair Powell testimony today and U.S inflation figures tomorrow.

The Stats

It was a relatively quiet start to the week on the Eurozone economic calendar. Key stats included Eurozone investor confidence and Eurozone unemployment figures.

Sentix Investor Confidence

In January, the Eurozone’s Sentix Investor Confidence Index increased from 13.5 to 14.9. Economists had forecast a fall to 12.0.

According to the January survey,

  • The current assessment improved by 3.0 points, while the expectations component stagnated.
  • For Germany, the overall index increased by 2.6%, supported by a 6.2% jump in the current situation component. The expectations component held steady at +15.0 points.

Unemployment

In November, the Eurozone’s unemployment rate slipped from 7.3% to 7.2%, which was in line with forecasts.

According to Eurostat,

  • The youth unemployment rate was 15.5%, down from 15.8% in October.
  • Compared with November 2020, the number of unemployed youths decreased by 188,000.
  • For the Eurozone, the unemployment rate had stood at 8.1% in November 2020.

From the U.S

There were no major stats from the U.S to provide the majors with direction late in the day.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Monday. Continental and Daimler ended the day down by 2.12% and by 0.69% respectively. BMW rallied by 1.67%, however, with Volkswagen rising by 0.01%.

It was also a mixed day for the banks. Deutsche Bank gained 0.06%, while Commerzbank slid by 2.14%.

From the CAC, it was a mixed day for the banks. Credit Agricole gained 0.54%, while Soc Gen and BNP Paribas ended the day down by 0.56% and by 0.78% respectively.

The French auto sector had a bearish session. Stellantis NV and Renault ended the day with losses of 0.77% and 0.61% respectively.

Air France-KLM and Airbus SE rose by 0.96% and by 0.19% respectively.

On the VIX Index

It was back into the green for the VIX on Monday. Partially reversing a 4.33% loss from Friday, the VIX rose by 3.41% to end the day at 19.40.

The NASDAQ gained 0.05%, while the Dow and the S&P500 saw losses of 0.45% and 0.14% respectively.

 

The Day Ahead

It’s a quiet day ahead on the Eurozone’s economic calendar. There are no major stats from the Eurozone or the U.S to provide the majors with direction. While there are no stats, ECB President Lagarde is scheduled to speak later today. The markets will be looking for any shift in view on inflation in the wake of the FED’s latest meeting minutes.

Later in the session, however, FED Chair Powell testimony to lawmakers will likely be the main event of the day. The FED Chair could be in for a tough session on inflation. Any guidance on where he sees rates by the end of the year will be of significance.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 15 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: Eurozone Unemployment and COVID-19 Stats in Focus

Economic Calendar

Monday, 10th January

Eurozone Unemployment Rate (Nov)

Tuesday, 11th January

ECB President Lagarde Speaks

FED Chair Powell Testimony

Wednesday, 12th January

Eurozone Industrial Production (MoM) (Nov)

Friday, 14th January

French CPI (MoM) (Dec) Final

French HICP (MoM) (Dec) Final

Spanish CPI (YoY) (Dec) Final

Spanish HICP (YoY) (Dec) Final

Eurozone Trade Balance (Nov)

ECB President Lagarde Speaks 

The Majors

It was a bearish end to the week for the European majors on Friday. The DAX30 fell by 0.65%, with the CAC40 and the EuroStoxx600 ending the day down by 0.43% and by 0.47% respectively.

Disappointing economic data from Germany and the U.S weighed on the majors. A further pickup in Eurozone inflationary pressure added to the downside on the day.

Away from the economic calendar, a continued surge in new COVID-19 cases across the region also pegged the majors back. While reports continued to talk of milder symptoms and fewer hospitalizations, an economic impact is to be expected. This was reflected in December’s service PMIs that had been released earlier in the week.

The Stats

It was a busy Eurozone economic calendar at the end of the week. Key stats included German industrial production and trade data along with Eurozone inflation figures.

The stats were market negative on the day. German industrial production unexpectedly fell by 0.2% versus a forecasted 1.0% increase. Also negative was a narrowing of Germany’s trade surplus from €12.4bn to €10.9bn.

Eurozone inflation figures were also market negative. According to prelim figures, the Eurozone’s annual rate of inflation ticked up from 4.9% to 5.0%. Month-on-month, consumer prices rose by 0.4%, following a 0.4% increase in November. Following the FED’s more hawkish than anticipated FOMC meeting minutes, the latest numbers could force the ECB’s hand…

From the U.S

Nonfarm payrolls for December disappointed on Friday. Falling well short of a forecasted 400k increase, nonfarm payrolls rose by just 199k in December.

While it was a weak number, the U.S unemployment rate fell from 4.2% to 3.9%, supporting a March rate hike.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Friday. Continental and Daimler led the way down, falling by 1.59% and by 1.80% respectively. BMW and Volkswagen saw more modest losses of 0.64% and 0.72% respectively.

It was a bullish day for the banks, however. Deutsche Bank and Commerzbank rose by 1.78% and by 3.50% respectively.

On the DAX30, Delivery Hero was the biggest loser, tumbling by 13.5%.

From the CAC, it was a bullish day for the banks. BNP Paribas gained 0.48%, with Soc Gen and Credit Agricole ending the day up by 1.07% and by 1.01% respectively.

The French auto sector had a mixed session. Stellantis NV fell by 1.34%, while Renault ended the day up by 0.31%.

Air France-KLM found support, rising by 0.59%, while Airbus SE declined by 0.79%

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Friday, marking a 10th fall in 13 sessions.

Following a 0.61% decline on Thursday, the VIX fell by 4.33% to end the day at 18.76.

The Dow slipped by 0.01%, with the NASDAQ and the S&P500 seeing losses of 0.96% and 0.41% respectively.

VIX 090122 Daily Chart

The Day Ahead

It’s a quiet day ahead on the Eurozone’s economic calendar. Eurozone unemployment figures are due out in the early part of the European session. With little else for the markets to consider, expect any weak numbers to influence.

From the U.S, there are no major stats for the markets to consider. The lack of stats will leave central bank chatter and COVID-19 news updates to influence later in the day.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 50 points, while the DAX was up by 16 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: A Week in Review – 07/01/22

The Majors

It was a mixed start to the year for the European majors in the week ending 7th January.

The EuroStoxx600 slipped by 0.40%, while the CAC40 and the DAX30 ended the week up by 0.40% and by 0.91% respectively.

It was a choppy week for the majors, which kicked off the year with strong gains early in the week. Continued reports of Omicron symptoms being milder, with fewer hospitalizations were market positive. Economic data from the Eurozone were skewed to the negative, however, with inflationary pressures lingering.

While milder, surging COVID-19 cases throughout the week coupled with disappointing stats tested support for the majors later in the week.

Adding further pressure were the FOMC meeting minutes, which caught the markets off-guard. Talk of the need to address inflation with sooner than expected rate hikes and the need to reduce the balance sheet weighed.

The Stats

Private sector PMIs for the Eurozone and member states, inflation, and the German economy were in focus.

Manufacturing sector growth remained relatively stable in December, while the services sector took a hit.

The Eurozone’s manufacturing PMI fell from 58.4 to 58.0, while the services PMI declined from 55.9 to 53.1. As a result, the Eurozone Composite PMI fell from 55.4 to a 9-month low 53.3.

For Germany, retail sales, unemployment, and industrial production figures were all upbeat for November. With the sharp rise in Omicron cases late in the year, however, the numbers had a relatively muted impact on the majors. A sharp narrowing in Germany’s trade surplus also failed to move the dial.

On the inflation front, however, the prelim numbers pointed to another pickup in inflationary pressure in December.

While France’s annual rate of inflation held steady at 2.8%, Germany’s picked up from 5.2% to 5.3%. Italy’s annual rate of inflation accelerated from 3.7% to 3.9%. As a result, the Eurozone’s annual rate of inflation ticked up from 4.9% to 5.0%. The uptick will likely put more pressure on the ECB to make a move, particularly after the FED’s shift in stance on interest rates.

From the U.S

Private sector PMIs and labor market stats were in focus ahead of Friday’s all-important nonfarm payrolls.

The stats were skewed to the negative, with private sector growth slowing. In December, the ISM Manufacturing PMI fell from 61.1 to 58.7. More significantly, the ISM Non-Manufacturing PMI declined from 69.1 to 62.0.

Labor market stats were also skewed to the negative in the week. In November, JOLT’s job openings stood at 10.562m, which was down from 11.091m in October. Initial jobless claims increased from 200k to 207k in the week ending 31st December.

More significantly, however, was a modest 199k increase in nonfarm payrolls in December. Economists had forecast a 400k rise. The markets were likely expecting more following an 800k increase in nonfarm payrolls according to the ADP. In spite of the lower number, the U.S unemployment rate fell from 4.2% to 3.9%.

On the monetary policy front, the FOMC meeting minutes were also in focus mid-week. The global equity markets responded negatively to more hawkish minutes than expected. The minutes revealed that the FED may need to lift rates sooner than had been previously priced in.

The Market Movers

From the DAX, it was a bullish week for the auto sector. BMW and Daimler rallied by 8.03% and by 8.83% respectively to lead the way. Continental and Volkswagen ended the week up by 3.87% and by 5.78% respectively.

It was a particularly bullish week for the banking sector. Deutsche Bank rallied by 12.23%, with Commerzbank surging by 17.49%.

From the CAC, it was a bullish week for the banks. Soc Gen rallied by 9.93%, with BNP Paribas and Credit Agricole ending the week with gains of 6.14% and 7.25% respectively.

The French auto sector also had a bullish week. Stellantis NV and Renault rose by 7.94% and by 5.53% respectively.

Air France-KLM ended the week up by 9.76%, with Airbus rising by 4.75%.

On the VIX Index

It was back into the green for the VIX in the week ending 7th January, marking a 5th rise in 8-weeks.

Reversing a 4.12% decline from the previous week, the VIX rose by 8.94% to end the week at 18.76.

2-days in the green from 5 sessions, which included an FOMC driven 16.68% jump on Wednesday, delivered the upside.

For the week, the NASDAQ slid by 4.53%, with the Dow and the S&P500 ending the week down by 0.29% and by 1.87% respectively.

VIX 080122 Weekly Chart

The Week Ahead

It’s quieter week ahead on the Eurozone economic calendar. Key stats include industrial production, trade, and unemployment figures for the Eurozone. Expect the industrial production and trade data to draw the greatest interest.

From the U.S, inflation figures mid-week, together with the weekly jobless claims on Thursday and retail sales on Friday will also influence.

From Elsewhere

Inflation figures from China will also draw plenty of interest on Wednesday. Market sensitivity to inflation remains as the FED gets ready for lift-off.

Away from the Economic Calendar

News updates on COVID-19 will need continued monitoring, with any talk of new strains the downside risk for the majors.

European Equities: Eurozone Inflation and US Nonfarm Payrolls in Focus

Economic Calendar

Friday, 7th January

German Industrial Production (MoM) (Nov)

German Trade Balance (Nov)

French Consumer Spending (MoM) (Nov)

Eurozone CPI (YoY) (Dec) Prelim

Eurozone Retail Sales (MoM) (Nov)

The Majors

It was a choppy day for the European majors on Thursday. The CAC40 slid by 1.72%, with the DAX30 and the EuroStoxx600 ending the day down by 1.35% and by 1.25% respectively.

Economic data from Germany took a back seat as the markets responded to more hawkish than expected FOMC meeting minutes from Wednesday.

Economic data from the U.S also failed to deliver support. Another big jump in payrolls in December could more than pencil in a FED rate hike in March.

The Stats

It was quieter Eurozone economic calendar this morning. German factory orders were in focus early in the European session. Later in the day, German prelim inflation figures for December will drew interest. German construction PMI numbers that were also early in the session had a muted impact on the majors.

Factory Orders

In November, factory orders increased by 3.7% month-on-month, partially reversing a 5.8% slide from October. Economists had forecast a 2.1% increase.

According to Destatis,

  • In November 2021, the largest increase in orders (+32.0%) was recorded in the manufacture of other transport equipment. These include aircraft, ships, trains, etc.
  • New orders in the manufacture of motor vehicles and semi-trailers were up 7.0%. In October, orders had been down by 4.7%.
  • Foreign demand drove new orders (+8.0%) in November. Significantly, new orders from the euro area increased by 13.1%.
  • Producers of intermediate goods recorded a 1.2% increase in new orders.
  • Capital goods (+5.3%) and consumer goods (+3.8%) fared better in the month.
  • Year-on-year, factory orders were up 1.3%.

German Inflation

In December, the annual rate of inflation picked up from 5.2% to 5.3% versus a forecasted 5.1%. Month-on-month, consumer prices rose by 0.5%, reversing a 0.2% decline from November.

From the U.S

Weekly jobless claims and ISM Non-manufacturing PMI numbers were in focus.

In the week ending 31st December, initial jobless claims rose from 200k to 207k. Economists had forecast a decline to 197k.

Service sector activity took a hit in December, with the Omicron strain weighing. The ISM Non-manufacturing PMI fell from 69.1 to 62.0 versus a forecasted 66.9.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Thursday. Volkswagen led the way down, falling by 0.99%, with Continental ending the day with a 0.64% loss. BMW and Daimler saw more modest losses of 0.02% and 0.12% respectively.

It was also a bullish day for the banks, however. Deutsche Bank and Commerzbank rose by 2.53% and by 1.74% respectively.

From the CAC, it was also a bullish day for the banks. Soc Gen gained 1.86%, with BNP Paribas and Credit Agricole ending the day up by 1.36% and by 1.15% respectively.

The French auto sector had a mixed session. Stellantis NV fell by 0.99%, while Renault ended the day up by 0.38%.

Air France-KLM gave up more of Tuesday’s 8.13% gain, falling by 2.20%, with Airbus SE declining by 1.46%

On the VIX Index

It was back into the red for the VIX on Thursday, marking a 9th fall in 12 sessions.

Partially reversing a 14.05% jump from Wednesday the VIX slipped by 0.61% to end the day at 19.61.

The Dow fell by 0.47%, with the NASDAQ and the S&P500 seeing losses of 0.13% and 0.10% respectively.

VIX 070122 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone’s economic calendar. Early in the European session, industrial production and trade data for Germany will be in focus. Later in the session, Eurozone inflation and retail sales figures will also draw interest. Expect the Eurozone’s inflation figures to be key. Other stats due out include French consumer spending figures that should have a muted impact on the majors.

From the U.S, nonfarm payrolls will be the key stat of the day, however. A sharp rise in nonfarm payrolls would likely be considered a greenlight for a March rate hike.

Away from the economic calendar, COVID-19 news will need continued monitoring, however. Downside risks remain with the threat of new strains ever present.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 63 points, while the DAX was down by 16 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: Reaction to the FOMC Meeting Minutes Likely to Overshadow Today’s Stats

Economic Calendar

Thursday, 6th January

German Factory Orders (MoM) (Nov)

IHS Markit Construction PMI (Dec)

German CPI (MoM) (Dec)

Friday, 7th January

German Industrial Production (MoM) (Nov)

German Trade Balance (Nov)

French Consumer Spending (MoM) (Nov)

Eurozone CPI (YoY) (Dec) Prelim

Eurozone Retail Sales (MoM) (Nov)

The Majors

It was yet another bullish day for the European majors on Wednesday. The EuroStoxx600 rose by 0.07%, with the CAC40 and the DAX30 ending the day up by 0.74% and by 0.81% respectively.

Economic data from the Eurozone failed to weigh on risk sentiment in spite of the Eurozone’s composite PMI falling to a 9-month low. Eurozone economic powerhouse Germany saw its composite PMI fall to an 18-month low in December. The markets were in forgiving mood, with the services sector doing the damage as a result of the Omicron strain and surge in new cases.

The upside on the day was modest, however, with the FOMC meeting minutes out after the European close.

The Stats

It was another busy Eurozone economic calendar this morning. Member state and Eurozone service sector and composite PMIs were in focus.

Member States

For Spain, the services PMI fell from 59.8 to 55.8 versus a forecasted 57.5.

Service sector activity in Italy saw slower growth, with the PMI down from 55.9 to 53.0. Economists had forecast a fall to 54.0.

For France, the services PMI fell from 57.4 to 57.0, which was down from a prelim 57.1.

Germany’s services PMI declined from 52.7 to 48.7, which was up from a prelim 48.4.

The Eurozone

For the Eurozone, the services PMI fell from 55.9 to 53.1, which was down from a prelim 53.3.

As a result, the Composite PMI slipped from 55.4 to 53.3, which was down from a prelim 53.4.

According to the December survey,

  • Economic growth eased to a 9-month low in December.
  • Rising COVID-19 cases had a more marked impact on service sector activity.
  • At the end of the year, supply-related disruptions continued to impact production schedules.
  • In spite of supply chain issues, the manufacturing sector outpaced the services sector for the 1st time since July.
  • Composite output PMIs by country all declined during December.
  • Slower rates of growth were seen in Ireland, France, Spain, and Italy.
  • Demand for goods and services across the Eurozone rose at the slowest pace since March.
  • More significantly, demand from international clients rose at the slowest pace since January.
  • By contrast, business optimism improved marginally in December, coinciding with a pickup in the pace of hiring.
  • On the inflation front, output charges and input costs increased at the second-sharpest rates on record.

By Country

  • Ireland ranked 1st, with a composite PMI of 56.5.
  • France came in 2nd, with a 2-month low 55.8, following by Spain, with an 8-month low 55.4.
  • German sat behind Italy at the bottom of the table with an 18-month low 49.9.

From the U.S

ADP nonfarm employment change and finalized services and composite PMI numbers were in focus.

In December, the ADP reported an 807K surge in nonfarm payrolls versus a forecasted 400k increase. Nonfarm payrolls had increased by 505k in November, according to the ADP.

Private sector PMI numbers were also upbeat. In December, the Markit Services PMI slipped from 58.0 to 57.6, which was up from a prelim 57.5.

On the monetary policy front, the FOMC meeting minutes were released after the European close. The U.S markets responded negatively to more hawkish minutes than expected, which will likely weigh on the majors going into the European open. The minutes revealed that the FED may need to lift rates sooner than previously priced in.

The Market Movers

For the DAX: It was another bullish day for the auto sector on Wednesday. Daimler led the way once more, rallying by 4.01%, with BMW and Volkswagen ending the day up by 2.18% and by 2.15% respectively. Continental saw a more modest 1.69% gain on the day.

It was also a bullish day for the banks. Deutsche Bank rose by 1.35%, with Commerzbank gaining 1.99%.

From the CAC, it was a bullish day for the banks. BNP Paribas rose by 0.13%, with Soc Gen and Credit Agricole ending the day up by 1.02% and by 1.00% respectively.

The French auto sector also had a bullish session. Stellantis NV and Renault rallied by 5.10% and by 5.31% respectively.

Air France-KLM gave up some of Tuesday’s 8.13% gain, falling by 1.62%, while Airbus SE rose by 1.28%

On the VIX Index

It was a 2nd consecutive day in the green for the VIX on Wednesday, marking just the 3rd rise in 11 sessions.

Following a 1.87% gain on Tuesday the VIX jumped by 14.05% to end the day at 19.73.

The NASDAQ tumbled by 3.34%, with the Dow and the S&P500 seeing losses of 1.07% and 1.94% respectively.

VIX 060122 Daily Chart

The Day Ahead

It’s quieter day ahead on the Eurozone’s economic calendar. Economic data includes German factory orders, construction PMI, and inflation figures. Expect factory orders for November and prelim inflation figures for December to be key.

From the U.S, the market’s preferred ISM Non-Manufacturing PMI and weekly jobless claims will also influence later in the session. The markets will be looking for any impact of the Omicron strain on labor market conditions and service sector activity.

Going into the open, the FOMC meeting minutes from overnight will set the tone following the sell-off in the U.S. China’s Caixin services PMI, due out later this morning, will unlikely have an impact, however.

Away from the economic calendar, COVID-19 news will need continued monitoring. While it has been a bullish start to the year, downside risks remain over the Omicron strain and any news of new strains.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 82 points, while the DAX was down 157 points.

For a look at all of today’s economic events, check out our economic calendar.

Will 2022~23 Require Different Strategies For Traders/Investors Part II

Is The Lazy-Bull Strategy Worth Considering? Part II

I started this article by highlighting how difficult some 2021 strategies seemed for many Hedge Funds and Professional Traders. It appears the extreme market volatility throughout 2021 took a toll on many systems and strategies. I wouldn’t be surprised to see various sector ETFs and Sector Mutual Funds up 15% to 20% or more for 2021 while various Hedge Funds struggle with annual returns between 7% and -5% for 2021.

After many years in this industry and having built many of my own strategies over the past decade, I’ve learned one very important facet of trading strategy development – expect the unexpected. A friend always told me to “focus on failure” when we developed strategies together. His approach to strategy design was “you develop it do too well in certain types of market trends and volatility. By focusing on where it fails, you’ll learn more about the potential draw-downs and risks of a strategy than ignoring these points of failure”. I tend to agree with him.

In the first part of this research article, the other concept I started discussing was how traders/investors might consider moving away from strategies that struggled in 2022. What if the markets continue trending with extreme volatility throughout 2022 and into 2023? Suppose your system or strategy has taken some losses in 2022, and you have not stopped to consider volatility or other system boundaries as a potential issue. In that case, you may be looking forward to a very difficult 12 to 14+ months of trading in 2022 and 2023.

Volatility Explodes After 2017

Current market volatility/ATR levels are 300% to 500% above those of 2014/2015. These are the highest volatility levels the US markets have ever experienced in the past 20+ years. The current ATR level is above 23.20 – more than 35% higher than the DOT COM Peak volatility of 17.15.

As long as the Volatility/ATR levels stay near these elevated levels, traders and investors will likely find the markets very difficult to trade with strategies that cannot properly adapt to the increased risks and price rotations in trends. Simply put, these huge increases in price volatility may chew up profits by getting stopped out on pullbacks or by risking too much in terms of price range/volatility.

The increased volatility over the past 5+ years directly reflects global monetary policies and the COVID-19 global response to the crisis. Not only have we attempted to keep easy money policies for far too long in the US and foreign markets, but we’ve also been pushed into a hyperbolic price trend that started after 2017/18, which has increased global debt consumption/levels to the extreme.

2022 and 2023 will likely reflect a very strong revaluation trend which I continue to call a longer-term “transition” within the global markets. This transition will probably take many forms over the next 24+ months – but mostly, it will be about deleveraging debt levels and the destruction of excess risk in the markets. In my opinion, that means the strongest global economies may see some strength over the next 24+ months – but may also see extreme price volatility and extreme price rotation as this transition takes place.

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Expect The Unexpected in 2022 & 2023

The US major indexes had an incredible 2021 – rallying across all fears and COVID variants. The NASDAQ and S&P500 saw the biggest gains in 2021 – which may continue into early 2022. Yet I feel the US markets will continue to transition as the global markets continue to navigate the process of unwinding excess debt levels and potentially deleveraging at a more severe rate than many people expect.

Because of this, I feel the US markets may continue to strengthen as global traders pile into the US Dollar based assets in early 2022. Until global pressures of deleveraging and transitioning away from excesses put enough pressure on the US stock market, the perceived safety of US assets and the US Dollar will continue as it is now.

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(Source: www.StockCharts.com)

Watch For Sector Strength In Early 2022 As Price-Pressure & Supply-Side Issues Create A Unique Opportunity For Extended Revenues/Profits

I believe the US markets will see a continued rally phase in early 2022 as Q4:2021 revenues, earnings, and economic data pour in. I can’t see how any global economic concerns will disrupt the US markets if Q4:2021 data stays stronger than expected for US stocks and the US economy.

That being said, I do believe certain sectors will be high-fliers in Q1:2022 and Q2:2022 – at least until the supply-side issues across the globe settle down and return to more normal delivery expectations. This means sectors like Automakers, Healthcare, Real Estate, Consumer Staples & Discretionary, Technology, Chip manufacturers, and some Retail segments (Construction, Raw Materials, certain consumer products sellers, and specialty sellers) will drive a new bullish trend in 2022.

The US major indexes may continue to move higher in 2022. They may also be hampered by sectors struggling to find support or over-weighted in symbols that were over-hyped through the end of 2020 and in early 2021.

I have been concerned about this type of transition throughout most of 2021 (particularly after the MEME/Reddit rally phase in early 2021). That type of extreme trending usually leads to an unwinding process. I still don’t believe the US and global markets have completed the unwinding process after the post-COVID extreme rally phase.

Graphical user interface, chart Description automatically generated

(Source: www.StockCharts.com)

Will The Lazy-Bull Strategy Continue To Outperform In 2022 & 2023?

This is a tricky question to answer simply because I can’t predict the future any better than you can. But I do believe moving towards a higher-level analysis of global market trends when the proposed “transitioning” is starting to take place allows traders to move away from “chasing price spikes.” It also allows them to position for momentum strength in various broader market sectors and indexes.

I suspect we’ll start to see annual reports from some of the biggest institutional trading firms on the planet that show feeble performance in 2021. This recent article caught my attention related to Quant Funds in China.

I believe we will see 2022 and 2023 stay equally distressing for certain styles of trading strategies while price volatility and an extreme deleveraging/transitioning trend occur. Trying to navigate this type of choppy global market trending on a short-term basis can be very dangerous. I believe it is better to move above all this global market chop and trade the bigger momentum trends in various sectors and indexes.

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Part III of this research article will focus on Q1 through Q4 expectations for 2022 and 2023. I will highlight broader sector/index trends that may play out well for investors and traders who can move above the low-level choppiness in the US and global markets.

WANT TO LEARN MORE ABOUT THE TECHNICAL INVESTOR AND THE TECHNICAL INDEX & BOND TRADING STRATEGIES?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may begin a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to take a few minutes to visit the Technical Traders website to learn about our Technical Investor and Technical Index and Bond Trading strategies and how they can help you protect and grow your wealth.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

Will 2022~23 Require A Different Strategy For Traders/Investors?

Is The Lazy-Bull Strategy Worth Considering? – Part I

Many traders struggled in 2021 with the extended price volatility and sideways price trends. Recently, news that Bridgewater’s 2021 results were saved by December’s +7.8% gain (Source: Yahoo! Finance) leads me to believe a number of independent funds and investors are going to have a tough end-of-year return for 2021.

Average Hedge Fund Returns Less Than 25% Of The 2021 S&P500 Gains

The volatility in the US and global markets throughout most of 2021 took a toll on traditional trading strategies. With the VIX trading above 12 on average throughout almost all of 2021, traditional trading strategies may not have been able to adjust to this increased volatility in the US markets – getting chewed up along the way.

I wrote an article series about how computerized trading strategies can fail when volatility levels increase beyond traditional boundaries a few weeks ago. You can read the first of the three part series, US Federal Reserve Actions 1999 to Present – What’s Next?, and then link to the other two.

A screenshot of a computer

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(source: Aurum.com)

Many of the best Hedge Funds could barely squeeze out a profit in 2021. While the S&P500 rallied more than 27% in 2021, you can see from the graphic above that the average returns for Hedge Funds in 2021 were a paltry +6.24%.

I expect that the US and global markets will continue to stay in extended price volatility ranges throughout all of 2022 and into 2023 as broad global market transitioning continues to take place. This expectation leads me to conclude that the “Lazy-Bull” strategy may be better suited for traders/investors over the next 24+ months than more active trading strategies.

What Is The “Lazy-Bull” Strategy?

The Lazy-Bull strategy is a term I use for my proprietary strategies – The Technical Investor and the Technical Index & Bond Trader. I call it the Lazy-Bull strategy because it is straightforward and only generates about 3 to 10 trades per year (on average). Many traders dislike this type of strategy because it it does not require many trades and does not provide the rush/roller coaster ride that many think they should feel while trading, which is not how it should be.

Having said that, overall, this strategy has consistently produced positive annual results (CGAR average ROI 15% – 51% depending on ETF leverage, and only 7 – 21% drawdown) – beating the SPY almost every year. If you traded with the 1x, 2x, or 3x ETFs then you would have crushed the S&P 500 every year, and experienced that positive rush feeling that leverage/volatility provides.

My trading style is a bit different than most other traders. My objectives consist of three very important concepts:

  • Protect Capital At All Times
  • Trade Only When Strategically Opportunistic (probabilities are favorable)
  • Trade Efficiently Using Bonds As Trade When Fear Rises among traders and investors.

Through the Technical Investor and Technical Index and Bond Trading strategies, I help individuals and advisors learn how trading more efficiently using the Lazy-Bull strategies is for generating large compounded returns as shown in the SP500 chart below.

Chart

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I’ll go further into detail regarding my strategies as we continue this multi-part article.

Reading Into Q1:2022 – What To Expect?

Right now, the world is waiting on Q4:2021 earnings and economic data. The first Quarter of 2022 should be very exciting for US traders as the year-end momentum of 2021 may carry forward into Q1:2022 with solid revenues and earnings. After that, we move into Q2:2022, which may be much more volatile overall.

Let’s look at our proprietary data mining utility to see what we might expect from the markets in the first Quarter of 2022.

January 2022 has more than a 1.41:1 probability ratio of staying positive based on the past 29 years of historical data. Ideally, the average positive and negative monthly ranges are about equal – nearly $5.00. The accumulated monthly data shows that January is usually overall positive by at least $2.50 to $5.00.

February 2022 has a much higher chance of extreme volatility. February 2022 shows a much greater positive to negative ratio while the possibility of a bullish February drops to a 1.33:1 probability ratio. Overall, I would suspect larger price volatility in mid to late February 2022 as the markets attempt to transition into late Q1 expectations.

March 2022 has the same 1.41:1 probability ratio as January, yet the overall likelihood of extended downside price trends is about 20% greater than January.

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My analysis of this data suggests January and March of 2022 may surprise traders with a potential for a significant upward price move headed into Q2:2022. I believe Q4:2021 will also surprise traders as US consumers continue to engage and spend. This will lead to higher expectations for Q1:2022, which may set up a bit of a rally ahead of April/May 2022.

Q1 and Q2, historically, seem to be strong in terms of traditional market growth and expectations. Yes, there have been instances when unexpected volatility disrupts the more customary types of trends – and 2022 may be one of those years. Our research shows the US Fed may make early efforts to move away from extreme easy money policies – which may shock the markets.

Our research suggests the possibility of a 7% to 10% rally in the SPY in the First Quarter of 2022. If our extended research is accurate, our predictive modeling suggests more extreme price volatility may also play a significant role in how price trends/moves in 2022.

Is The Lazy-Bull Strategy Worth Considering?

In Part II of this article, we’ll review the entire year of 2022 Quarterly Data Mining results and present more evidence that 2022 and 2023 may be years where a shift in strategy plays an important role for traders/investors. With the VIX trading above 15 more consistently, many strategies will get chewed up and spit out as the markets roll 9% – 15% up and down while attempting to transition away from the post-COVID stimulus.

Get ready; 2022 will be an excellent year for traders with significant trends and bigger volatility. We just have to stay ahead of these trends to protect our capital and allow it to grow more efficiently. The risks of more traditionally moderate volatility systems getting chewed up in this extreme environment will continue. So be prepared to move towards a more protective trading style to survive the next 12 to 24 months.

Want To Learn More About The Technical Investor and The Technical Index & Bond Trading Strategies?

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to take a few minutes to visit the Technical Traders website to learn about our  Technical Index and Bond Trading strategy and how they can help you protect and grow your wealth.

Have a great day!

Chris Vermeulen
Chief Market Strategist

 

European Equities: Service Sector PMIs and US Labor Market Data in Focus

Economic Calendar

Wednesday, 5th January

Spanish Services PMI (Dec)

Italian Services PMI (Dec)

French Services PMI (Dec) Final

German Services PMI (Dec) Final

Eurozone Markit Composite PMI (Dec) Final

Eurozone Services PMI (Dec) Final

Thursday, 6th January

German Factory Orders (MoM) (Nov)

IHS Markit Construction PMI (Dec)

German CPI (MoM) (Dec)

Friday, 7th January

German Industrial Production (MoM) (Nov)

German Trade Balance (Nov)

French Consumer Spending (MoM) (Nov)

Eurozone CPI (YoY) (Dec) Prelim

Eurozone Retail Sales (MoM) (Nov)

The Majors

It was another bullish day for the European majors on Tuesday. The CAC40 rallied by 1.39% to lead the way, with the DAX30 and the EuroStoxx600 both ending the day up by 0.82% respectively. For the EuroStoxx600, it was another record high on the day.

Upbeat economic data from Germany delivered support for the majors, with inflation figures from France also market positive.

Travel stocks were amongst the front runners on the day, with autos and bank stocks also finding strong support.

The Stats

It was another busy Eurozone economic calendar this morning. German retail sales and unemployment figures were in focus along with prelim French inflation numbers for December.

The German Economy

According to Destatis, retail sales rose by 0.6% in November, following a 0.5% increase in October. Economists had forecast a 0.5% decline. Year-on-year, retail sales fell by 2.9% versus a forecasted 4.9% slide. In October, retail sales had fallen by 2.0%.

Unemployment figures were also upbeat. In December, unemployment fell by a further 23k after having fallen by 34k in November. As a result, the unemployment rate slipped from 5.3% to 5.2%. Economists had forecast a fall in unemployment of 15k and for the unemployment rate to hold steady at 5.3%.

French Inflation

According to Insee.fr, December’s annual rate of inflation held steady at 2.8% in December, according to prelim figures, which was in line with forecasts.

  • Food prices increased by 1.4% versus 0.5% in November.
  • Energy prices were up 18.6% versus 21.6% in November.
  • Prices for manufactured products increased by 1.2% and prices for services by 1.8%.
  • In November, prices for manufactured products had been up by 0.8% and services by 1.9%.
  • Month-on-month, consumer prices rose by 0.2% after having risen by 0.4% in November.

From the U.S

ISM Manufacturing PMI and JOLT’s job openings drew attention late in the European session.

In December, the ISM Manufacturing PMI slipped from 61.1 to 58.7 versus a forecasted decline to 60.0. The ISM Manufacturing Employment sub-index climbed from 53.3 to 54.2%, however.

In November, JOLT’s job openings fell from 11.091m to 10.562m. Economists had forecast openings of 11.075m.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Tuesday. Daimler led the way, rallying by 4.96%, with BMW and Volkswagen ending the day up by 3.13% and by 3.42% respectively. Continental saw a more modest 1.21% gain on the day.

It was also a bullish day for the banks. Deutsche Bank rose by 3.03%, with Commerzbank rallying by 4.75%.

From the CAC, it was a bullish day for the banks. Soc Gen rallied by 4.83%, with BNP Paribas and Credit Agricole ending the day up by 3.35% and by 2.37% respectively.

The French auto sector also had a bullish session. Stellantis NV and Renault saw gains of 3.95% and 2.77% respectively.

Air France-KLM led the way, surging by 8.13%, with Airbus SE rising by 2.36%

On the VIX Index

It was back into the green for the VIX on Tuesday, marking just the 2nd rise in 10 sessions.

Partially reversing a 3.60% fall from Monday, the VIX rose by 1.87% to end the day at 16.91.

The NASDAQ slid by 1.33%, with the S&P500 declining by 0.06%. It was a bullish day for the Dow, however, which rose by 0.59%.

VIX 050122 Daily Chart

The Day Ahead

It’s yet another busy day ahead on the Eurozone’s economic calendar. Service sector PMIs for Italy and Spain are due out in the early part of the European session. Finalized services and composite PMIs are also due out for France, Germany, and the Eurozone.

Barring marked revisions to prelims, expect Italy’s services PMI and the Eurozone’s composite PMI to be key.

From the U.S, ADP employment change figures will also influence along with finalized service sector PMI numbers.

Away from the economic calendar, COVID-19 news will need continued monitoring, however. While it has been a bullish start to the year, downside risks remain over the Omicron strain and vaccine efficacies.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 19 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: Another Busy Economic Calender to Provide Direction

Economic Calendar

Tuesday, 4th January

German Retail Sales (MoM) (Nov)

French CPI m/m (Dec) Prelim

French HICP m/m (Dec) Prelim

German Unemployment Change (Dec)

German Unemployment Rate (Dec)

Wednesday, 5th January

Spanish Services PMI (Dec)

Italian Services PMI (Dec)

French Services PMI (Dec) Final

German Services PMI (Dec) Final

Eurozone Markit Composite PMI (Dec) Final

Eurozone Services PMI (Dec) Final

Thursday, 6th January

German Factory Orders (MoM) (Nov)

IHS Markit Construction PMI (Dec)

German CPI (MoM) (Dec)

Friday, 7th January

German Industrial Production (MoM) (Nov)

German Trade Balance (Nov)

French Consumer Spending (MoM) (Nov)

Eurozone CPI (YoY) (Dec) Prelim

Eurozone Retail Sales (MoM) (Nov)

The Majors

It was a bullish start to the year for the European majors, with the CAC40 and DAX30 rising by 0.90% and by 0.86% respectively. The EuroStoxx600 ended the day up by 0.45%.

A busy economic calendar distracted the markets from COVID-19 stats from the weekend. A continued rise in new cases failed to raise question markets over the resilience over the economic recovery. PMI numbers from the Eurozone provided strong support, with sub-components of the PMIs also market positive.

Away from the economic calendar, continued reports of the Omicron strain being milder was key to the bullish start.

The Stats

Manufacturing PMI figures for Italy and Spain were in focus. Finalized manufacturing PMIs for France, Germany, and the Eurozone also drew interest, however.

Member State Manufacturing PMIs

Spain’s Manufacturing PMI fell from 57.1 to 56.2 in December, which was in line with forecasts.

In December, Italy’s Manufacturing PMI declined from 62.8 to 62.0. Economists had forecast for the PMI to fall to 61.5.

According to finalized figures:

France’s Manufacturing PMI slipped from 55.9 to 55.6, which was up from a prelim 54.9.

In November, Germany’s Manufacturing PMI held steady at 57.4, which was down from a prelim 57.9.

The Eurozone

According to finalized figures, the Eurozone’s Manufacturing PMI fell from 58.4 to a 10-month low 58.0 in December, which was in line with prelim.

According to the December survey,

  • Average lead times lengthened to the softest extent since February.
  • As a result of easing supply chain issues, firms added purchases to their inventories at the fastest pace ever recorded.
  • In spite of this, output growth remained unchanged.
  • Input cost and output price inflation eased, though remained among the fastest ever seen by the survey.
  • New manufacturing orders increased at the joint-weakest rate since January as a result of weaker overseas demand.
  • Rising outstanding work led to a pickup in the pace of hiring.

By Country,

  • Italy ranked 1st, with a 2-month low PMI of 62.0, followed by Greece (59.0).
  • France sat at the bottom of the table with a 2-month low PMI of 55.6.
  • Spain’s PMI fell to a 10-month low 56.2 to sit just above France.

From the U.S

In December, the U.S Manufacturing PMI fell from 58.3 to 57.7 versus a prelim 57.8.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Monday. BMW and Continental both ended the day up by 3.21% respectively. Daimler and Volkswagen saw more modest gains of 1.64% and 1.87% respectively.

It was also a bullish day for the banks. Deutsche Bank rose by 3.00%, with Commerzbank rallying by 4.51%.

From the CAC, it was a bullish day for the banks. BNP Paribas rose by 0.71%, with Credit Agricole and Soc Gen ending the day up by 1.50% and by 0.83% respectively.

The French auto sector also had a bullish session. Stellantis NV and Renault saw gains of 3.85% and 2.85% respectively.

Air France-KLM found much-needed support, rallying by 4.88%, with Airbus SE rising by 3.36%

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Monday, marking an 8th loss in 9-sessions.

Following a 0.63% decline on Friday, the VIX fell by 3.60% to end the day at 16.60.

The NASDAQ rose by 1.20%, with the Dow and the S&P500 gaining 0.68% and 0.64% respectively.

VIX 040122 Daily Chart

The Day Ahead

It’s another busy day ahead on the Eurozone’s economic calendar. French inflation figures and German retail sales and unemployment numbers will be in focus early in the session.

While the unemployment numbers are key, expect plenty of interest in retail sales and inflation.

Ahead of the European open, manufacturing PMI numbers from China will set the tone.

From the U.S, the market’s preferred ISM Manufacturing PMI and JOLT’s job openings will also influence late in the session.

Away from the economic calendar, COVID-19 news will need continued monitoring, however.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 6 points, with the DAX down by 19 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: Futures Point Northwards ahead of Private Sector PMIs

Economic Calendar

Monday, 3rd January

Spanish Manufacturing PMI (Dec)

Italian Manufacturing PMI (Dec)

French Manufacturing PMI (Dec) Final

German Manufacturing PMI (Dec) Final

Eurozone Manufacturing PMI (Dec) Final

Tuesday, 4th January

German Retail Sales (MoM) (Nov)

French CPI m/m (Dec) Prelim

French HICP m/m (Dec) Prelim

German Unemployment Change (Dec)

German Unemployment Rate (Dec)

Wednesday, 5th January

Spanish Services PMI (Dec)

Italian Services PMI (Dec)

French Services PMI (Dec) Final

German Services PMI (Dec) Final

Eurozone Markit Composite PMI (Dec) Final

Eurozone Services PMI (Dec) Final

Thursday, 6th January

German Factory Orders (MoM) (Nov)

IHS Markit Construction PMI (Dec)

German CPI (MoM) (Dec)

Friday, 7th January

German Industrial Production (MoM) (Nov)

German Trade Balance (Nov)

French Consumer Spending (MoM) (Nov)

Eurozone CPI (YoY) (Dec) Prelim

Eurozone Retail Sales (MoM) (Nov)

The Majors

It was a bearish end to the year for the European majors, with the CAC40 and EuroStoxx600 falling by 0.28% and by 0.04% respectively. Germany’s DAX30 was closed for the holidays.

There were no major stats from the Eurozone or the U.S to influence the majors on the day. Economic data from China failed to impress despite better-than-expected figures.

In December, China’s NBS Manufacturing PMI increased from 50.1 to 50.3 versus a forecasted 50.0. The NBS Non-Manufacturing PMI rose from 52.3 to 52.7.

While continued news reports of fewer COVID-10 hospitalizations were market positive, the upward trend in new cases weighed on the majors.

The Stats

There were no major stats from the Eurozone.

From the U.S

There were also no major stats from the U.S to influence late in the European session.

The Market Movers

From the CAC, it was a mixed day for the banks. BNP Paribas rose by 0.16%, while Credit Agricole and Soc Gen ended the day down by 0.43% and by 0.12% respectively.

The French auto sector also had a mixed session. Stellantis NV fell by 0.10%, while Renault rallied by 1.48%.

Air France-KLM took yet another hit, falling by 0.13%, with Airbus SE ending the day down by 0.28%.

On the VIX Index

It was back into the red for the VIX on Friday, marking a 7th loss in 8-sessions.

Partially reversing a 2.24% rise from Thursday, the VIX slipped by 0.63% to end the day at 17.22.

The NASDAQ fell by 0.61%, with the Dow and the S&P500 declining by 0.16% and by 0.26% respectively.

VIX 030122 Daily Chart

The Day Ahead

It’s a particularly busy day ahead on the Eurozone’s economic calendar. Manufacturing sector PMIs for Italy and Spain will be in focus. Finalized manufacturing PMIs for France, Germany, and the Eurozone are also due out. Barring revisions from prelims, however, expect Italy and the Eurozone’s PMIs to be key.

From the U.S, December’s finalized Markit Manufacturing PMI will also be in focus late in the European session. Barring a marked upward revision, however, we don’t expect too much influence from the finalized numbers.

Away from the economic calendar, COVID-19 news will need continued monitoring, however.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 124 points with the DAX up 24 points.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: A Week in Review – 31/12/21

The Majors

It was a bullish final week of the year for the European majors in the week ending 31st December.

The EuroStoxx600 rose by 1.10%, with the CAC40 and the DAX30 ending the week up by 0.94% and by 0.82% respectively.

Following another bullish week, the majors also had a bullish final month of the year. The CAC40 led the way, rising by 6.43%, with the DAX30 and the EuroStoxx600 gaining 5.20% and 5.37% respectively. In spite of COVID-19 and the new Omicron strain, it was a particularly bullish year for the CAC40, which rallied by 28.9% in 2021. The EuroStoxx600 and DAX30 trailed, however, with gains of 22.3% and 15.8% respectively.

Economic data was on the lighter side in the week, with key stats from the U.S providing some support in thin trading.

In a shortened week for a number of key markets, news updates on the Omicron strain delivered support. Reports of fewer hospitalizations and milder cases, in spite of the surge in new cases, were key. Positive reports from vaccine manufacturers over the effectiveness of boosters were also a market positive. In the week, Johnson & Johnson had reported that a booster shot would be 85% effective at preventing hospitalization.

The Stats

Unemployment figures from France and inflation figures from Spain were the key stats in the week.

In November, jobseeker totals declined from 3,142.5k to 3,087.8k.

More significantly, however, was a marked pickup in inflationary pressure in Spain.

According to prelim figures, Spain’s annual rate of inflation accelerated from 5.5% to 6.7%. Economists had forecast a more modest pickup to 5.7%.

From the U.S

Jobless claims and Chicago’s PMI figures were the key stats in the week, with the markets looking to assess the impact of the Omicron strain on labor market conditions.

In the week ending 24th December, initial jobless claims fell from 206k to 198k. Economists had forecast an increase to 208k.

In December, Chicago’s PMI rose from 61.8 to 63.1, which was also market positive.

Other stats in the week included goods trade data, inventory, and housing sector figures. The stats had a muted impact on the majors, however.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental and BMW fell by 0.76% and by 0.78% respectively, with Daimler sliding by 3.57%. Volkswagen bucked the trend, ending the week up by 0.33%.

It was a bearish week for the banking sector, however. Deutsche Bank and Commerzbank fell by 1.55% and by 0.30% respectively.

From the CAC, it was a bullish week for the banks. BNP Paribas rallied by 1.71%, with Soc Gen and Credit Agricole ending the week with gains of 0.90% and 0.48% respectively.

The French auto sector also had a bullish week. Stellantis NV rose by 0.53%, with Renault rallying by 2.62%.

Air France-KLM ended the week down by 1.80%, while Airbus increased by 0.61%.

On the VIX Index

It was a 2nd consecutive week in the red for the VIX in the week ending 31st December, marking a 3rd loss in 7-weeks.

Following a 16.74% slide from the previous week, the VIX fell by 4.12% to end the week at 17.22.

4-days in the red from 5 sessions, which included an 3.36% fall on Wednesday, delivered the downside.

For the week, the NASDAQ slipped by 0.05%, while the Dow and the S&P500 ended the week up by 1.08% and 0.85% respectively.

VIX 010122 Weekly Chart

The Week Ahead

It’s busy week ahead on the Eurozone economic calendar. Key stats include private sector PMIs for member states and the Eurozone and economic data from Germany.

At the start of the week, manufacturing PMI numbers for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone will be in focus. Barring revisions to prelim numbers, expect Italy and the Eurozone’s PMIs to be key.

On Tuesday, German retail sales an unemployment figures will be in focus ahead of service sector PMIs on Wednesday.

Through the remainder of the week, German factory orders, inflation, industrial production, and trade data will also be key, however.

From the U.S, it’s also a busy week ahead. ISM Manufacturing and Non-Manufacturing PMI numbers will be key. On Thursday, jobless claims will also draw interest ahead of nonfarm payrolls on Friday.

From Elsewhere

China’s Caixin manufacturing PMI will also influence on Tuesday.

Away from the Economic Calendar

News updates on the new Omicron strain will need continued monitoring alongside any central bank chatter.