European Equities: A Week in Review – 28/05/21

The Majors

It was another choppy week for the European majors in the week ending 28th May.

In the week ending 28th May, the CAC40 rose by 1.53%, with the EuroStoxx600 and the DAX30 ending the week up by 1.02% and 0.53% respectively.

Economic data from the Eurozone and the U.S and updates from the ECB of no plans to consider a tapering to the asset purchasing program delivered support.

The upside came in spite of FOMC member acknowledging a willingness to begin discussions on a tapering to their asset purchasing program.

Ultimately, market optimism towards the economic outlook prevailed as EU member states reopen borders for tourism.

The Stats

Early in the week, the German economy was in focus.

In the 1st quarter, the German economy contracted by more than had been expected. Quarter-on-quarter, the economy contracted by 1.8%, revised down from a prelim 1.7%. Year-on-year, the economy contracted by 3.3%, which was revised down from a prelim 3.3% contraction.

Offsetting the effects of the downward revisions, however, were improved consumer and business sentiment.

The IFO Business Climate Index rose from 96.6 to 99.2, with the GfK Consumer Climate rising from -8.6 to -7.0.

At the end of the week, the French economy was in focus.

In the 1st quarter, the French economy contracted by 0.1% quarter-on-quarter, revised down from a prelim 0.4% expansion. In the 4th quarter, the economy had contracted by 1.5%.

Household spending also disappointed. In April 2021, consumer spending tumbled by 8.3%, month-on-month, versus a forecasted 0.4% increase. Consumer spending had fallen by 0.3% in March.

Inflationary pressures were on the rise, however. According to prelim figures, the annual rate of inflation picked up from 1.2% to 1.4% in May. Month-on-month, consumer prices increased by 0.3%, following a 0.1% rise in April.

From the U.S

Key stats through the week included consumer confidence, jobless claims and core durable goods orders.

The stats were mixed ahead of a busier Friday.

Consumer confidence weakened marginally in May, with 2nd estimate GDP numbers for the 1st quarter aligned with first estimates.

On the positive, however, was a slide in the weekly jobless claims from 444k to 406k.

A further 1.0% increase in core durable goods orders, following a 3.2% jump in March, was also positive.

At the end of the week, the focus shifted to inflation, personal spending, and consumer sentiment.

In May, personal spending rose by a more modest 0.5% after a 4.7% jump in April.

Inflationary pressures were on the rise, however, with the Core PCE Price Index rising by 0.7% in April. In the month of March, the Index had risen by 0.4%.

Year-on-year, the index jumped by 3.1% coming in ahead of a forecasted 2.9%. In April, the index had risen by 1.9%, year-on-year.

Finalized consumer sentiment figures affirmed a decline from April.

In May, the Michigan Consumer Sentiment Index fell from 88.3 to 82.9, which was up from a prelim 82.8.

On the monetary policy front, FOMC member chatter affirmed comments from the minutes of a willingness to consider a tapering to the asset purchasing program.

The Market Movers

From the DAX, it was another bullish week for the auto sector. Continental and Volkswagen rallied by 4.15% and by 4.80% respectively, with BMW and Daimler rising by 2.29% and by 1.73% respectively.

It was also a bullish week for the banking sector. Deutsche Bank and Commerzbank ended the week with gains of 2.49% and 1.85% respectively.

From the CAC, it was a relatively bullish week for the banks. Soc Gen rose by 0.04%, with BNP Paribas and Credit Agricole seeing gains of 0.43% and 0.16% respectively.

It was a bullish week for the French auto sector. Stellantis NV and Renault rallied by 5.28% and by 4.82% respectively.

Air France-KLM ended the week up by 3.58%. Airbus led the way, however, surging by 10.31%. The upside came off the back of news of plans to ramp up aircraft production.

On the VIX Index

It was back into the red after 2 consecutive weeks in the green for the VIX in the week ending 28th May. Reversing a 7.12% gain from the week prior, the VIX fell by 16.82% to end the week at 16.76.

3-days in the red from 5 sessions, which included an 8.68% fall on Monday and a 7.86% decline on Wednesday delivered the downside in the week.

For the week, the NASDAQ rose by 2.06%, with the Dow and the S&P500 ending the week up by 0.94% and by 1.16% respectively.

VIX 290521 Weekly Chart

The Week Ahead

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

Private sector PMIs are due out on Tuesday and Thursday. Barring a marked revision to prelim numbers from France and Germany, the Eurozone and Italy’s PMIs would likely be key.

Early in the week, German retail sales and unemployment figures Germany and the Eurozone will also influence.

At the end of the week, retail sales for the Eurozone wrap things up.

From the U.S, ISM private sector PMIs, ADP nonfarm employment change, and weekly jobless claims figures will draw interest ahead of May’s nonfarm payroll figures on Friday.

The markets will be looking for a continued pickup in private sector activity and a continued improvement in labor market conditions.

From elsewhere, private sector PMI numbers from China will also influence. Expect the market’s preferred Caixin Manufacturing PMI to be the key driver on Tuesday.

On the monetary policy front, ECB and FOMC member chatter will also need monitoring in the week.