It was a bearish week for the European majors in the week ending 15th May. The CAC30 slid by 5.98% to lead the way down, with the DAX30 and EuroStoxx600 falling by 4.03% and by 3.76 respectively.
For the CAC40 and DAX30, it had been 4 consecutive days in the red before support kicked in on Friday.
Market concerns over a possible 2nd wave of the coronavirus, dovish chatter from FED Chair Powell, and rising tensions between the U.S and China delivered the losses.
Economic data from the Eurozone and the U.S certainly did not help in the week, however, with more records broken.
At the end of the week, the majors did find support. The upside came in spite of some dire stats and the U.S threat to cut the supply of chips to Huawei. In response, China announced that it would ban doing business with U.S marquee companies should the U.S go through with its threat.
Better than expected industrial production figures out of China contributed to the upside on Friday. It wasn’t enough to prevent the worst weekly decline since March, however.
It was a relatively busy week on the Eurozone economic calendar. Through the 1st half of the week, economic data was limited to April industrial production figures for the Eurozone. While better than forecasts, an 11.30% slide certainly didn’t help the mood.
The markets then had to wait until Friday for 1st estimate GDP numbers for Germany and 2nd estimate figures for the Eurozone.
In the 1st quarter, the German economy contracted by 2.2%, which was in line with forecasts. Year-on-year, however, the economy contracted by 1.9%, which was worse than a forecasted 1.6% contraction.
For the Eurozone, an upward revision to the year-on-year contraction to 3.2% was the only positive stat of the week.
From the ECB, the Economic Bulletin on Thursday reminded the markets of the ECB’s view on the economy and outlook. There was nothing positive for the more optimistic market participants to cling onto…
Out of the U.S, another 2.9m surge in initial jobless claims and a record 16.4% month-on-month fall in retail sales added to the doom and gloom.
On Friday, China reported a 3.5% rise in industrial production, which provided much-needed support at the end of the week.
The Market Movers
From the DAX, it was a bearish week for the auto sector. BMW and Daimler tumbled by 8.96% and 10.37% respectively to lead the way down. Continental and Volkswagen saw more modest losses of 6.16% and 5.57% respectively.
It was a particularly bearish week for the banking sector. Commerzbank tumbled by 11.13%, with Deutsche Bank sliding by 9.42%.
Lufthansa also struggled, with a 4.62% slide on Friday, leading to a 5.10% loss for the week.
From the CAC, it was also a bearish week for the banks. Soc Gen tumbled by 11.30%, with BNP Paribas and Credit Agricole sliding by 7.91% and by 6.20% respectively.
Things were not much better for the French auto sector, with Peugeot tumbling by 14.22%. Renault saw a more modest 0.29% loss for the week.
Air France-KLM and Airbus saw another week of heavy losses, with the pair sliding by 6.91% and by 12.06% respectively.
On the VIX Index
It was back into the green for the VIX in the week ending 15th May. Partially reversing a 24.76% slide from the previous week, the VIX rose by 13.97% to end the week at 31.9.
Economic data and rising tension between the U.S and China coupled with negative central bank chatter delivered the upside.
For the U.S equity markets, 3 consecutive days in the red did the damage before support kicked in on Thursday.
In spite of particularly dire stats and a U.S – China exchange of threats, hopes of a marked pickup in economic activity limited the upside for the VIX.
Lockdown measures continued to ease, which led to a marginal increase in the number of new coronavirus cases in the week.
The S&P500 ended the week down by 2.26%, with the Dow and NASDAQ falling by 2.65% and by 1.17% respectively.
The Week Ahead
It’s a busy week ahead on the Eurozone economic calendar.
Through the 1st half of the week, key stats include May ZEW Economic sentiment figures for Germany and the Eurozone and Eurozone consumer confidence figures.
For the majors to respond, there will need to be a marked pickup in consumer confidence.
The markets will then need to look ahead to prelim May private sector PMIs due out on Friday. These numbers will be particularly influential on risk sentiment at the end of the week.
Through May, governments eased lockdown measures that should provide the private sector with much-needed support.
While a slower pace of contraction across the manufacturing sector is likely, expect the services PMIs to garner plenty of attention…
From elsewhere, we will expect the weekly jobless claims figures from the U.S to continue to be a market area of focus.
Ahead of the numbers, the FOMC minutes on Wednesday will also influence, as will prelim May private sector PMIs and May’s Philly FED Manufacturing Index numbers on Thursday.
On the geopolitical risk front, there’s the U.S and China to consider, while the markets will also need to monitor the daily COVID-19 numbers.
From the EU, Finance Ministers are scheduled to have a virtual meeting at the start of the week. Talks of a more sizeable stimulus package will be a must for the majors to avoid another weekly spill.
This article was originally posted on FX Empire
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