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European Equities: A Week in Review – 11/01/20

Bob Mason

The Majors

It was another mixed week for the European majors in the week ending 10th January. The DAX30 and EuroStoxx600 rose by 2.04% and by 0.19%, while the CAC40 fell by 0.12% to buck the trend in the week.

The gains came in spite of a particularly choppy week that saw the majors slide on Monday as the situation in the Middle East escalated.

While the majors fell to week lows on Monday, Wednesday was also a significant day for the majors. The markets had to wait until Wednesday for the Iran government to respond to the U.S drone attack on the previous Friday

In spite of Trump’s threat of retaliation, Iran targeted a number of bases in Iraq that housed the U.S military.

There were no reported casualties in the attack, however, which ultimately led to a reversal of the losses from the early part of the day.

Late on Wednesday, the U.S President spoke in a scheduled speech, extending an olive branch to the Iranian government.

The speech delivered strong support for riskier assets, with the European majors responding on Thursday.

Alongside the escalation and de-escalation in the Middle East was the positive sentiment towards trade. The news hit the wires in the week that China’s vice premier Liu He will be traveling to Washington to sign the phase 1 agreement.

At the end of the week, the majors gave up some of the gains, however. The late Friday pullback came as the markets reacted to the U.S decision to impose fresh sanctions on Iran.

The Stats

It was a busy week on the Eurozone economic calendar. Key stats included service sector PMI numbers for December at the start of the week, which were positive. The Eurozone’s service sector PMI hit a 4-month high, with Germany rising off the bottom of the composite PMI table, also with a 4-month high.

The numbers were brushed aside, however, with rising tensions between Iran and the U.S overshadowing the stats.

On Wednesday, factory orders out of Germany failed to impress, with orders sliding by 1.3% in November. Economists had forecast a 0.2% increase.

It was a mixed bag on Thursday, however, with Germany’s trade balance narrowing in November, while industrial production rose by 1.1%. The rise came off the back of a pickup in factory orders in October.

With factory orders on the slide in November and December’s manufacturing PMI survey reporting a sharp fall in output, production numbers are unlikely to impress the next time around.

From the Eurozone, the unemployment rate held steady at 7.5% in November, with Germany recording the lowest unemployment rate.

Ultimately, it was the market reaction to Trump’s speech from Wednesday that drove the majors on Thursday.

A lack of stats on Friday left the Eurozone majors in the hands of geopolitics at the end of the week.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Continental and Volkswagen led the way, rallying by 4.69% and by 4.47% respectively. BMW and Daimler saw more modest gains of 1.67% and 1.00% respectively.

The gains came in spite of yet another Friday sell-off that saw Continental and Daimler slide by 1.16% and 1.06% respectively. While BMW fell by 0.09% on the day, Volkswagen bucked the trend, rallying by 1.86%.

It was a mixed week for the banking sector, however. Deutsche Bank rose by 5.79%, while Commerzbank slipped by 0.69% in the week. A 1.71% slide on Friday left Commerzbank in the red.

From the CAC, it was also a mixed week for the banks. BNP Paribas and Credit Agricole fell by 1.47% and by 1.68% respectively, while Soc Gen rose by 0.32%.

The French auto sector also delivered mixed results in the week, with Peugeot falling by 2.11%, while Renault rose by 1.50%.

On the VIX Index

The VIX Index slid by 10.41% in the week ending 10th January. Reversing a 4.39% gain from the previous, the VIX ended the week at 12.6.

It was a mixed week once more, with tensions in the Middle East leading to a week high 16.4 on Monday before sliding back to sub-13 levels.

A 0.16% gain on Friday ended a run of 4 consecutive days in the red. The upside on Friday came in response to the U.S announcement of fresh sanctions on Iran.

The Week Ahead

It’s a relatively quiet week on the Eurozone economic calendar. Key stats include industrial production and trade data due out of the Eurozone on Wednesday.

Barring material deviation from prelims, finalized December inflation figures will likely have a muted impact on the majors

On the monetary policy front, the ECB meeting minutes due out on Thursday will also garner some attention. At the end of the year, the ECB’s Economic Bulletin had talked of a bottoming out in the Eurozone’s private sector. December’s PMI numbers were broadly in line with the ECB’s outlook. The minutes could also reveal a similar view, which would suggest a hold on monetary policy throughout the year.

From elsewhere

Economic data out of China will provide direction at the end of the week. Industrial production and 4th quarter GDP numbers are due out on Friday.

From the U.S, inflation, industrial production, retail sales and manufacturing PMI numbers out of NY State and Philly will also influence.

On the geopolitical risk front, we can expect market sensitivity to chatter from Washington and Iran to persist. The markets will also respond to Wednesday’s signing of the phase 1 trade agreement. The big question does remain, however, on when phase 2 talks will commence and when remaining tariffs will be rolled back.

This article was originally posted on FX Empire