European Equities: A Month in Review – July 2020

The Majors

It was a mixed month for the European majors, with a final week sell-off reversing gains from earlier in the month.

The DAX30 ended the month up by just 0.02%, while the CAC40 and EuroStoxx600 fell by 3.49% and by 2.98% respectively.

Disappointing economic data from the Eurozone and the U.S, together with a mixed bag on the earnings front weighed late in the month.

Away from the economic calendar, U.S – China tensions and a 2^nd wave of the COVID-19 pandemic added to the market angst.

For the European majors, EU member state agreement on the structure of the COVID-19 Recovery Fund had provided some support.

Coupled with news of progress towards a COVID-19 vaccine and positive economic data, the DAX30 had been up by as much as 7% before falling back to sub-13,000 levels.

The Stats

It was a busy month on the Eurozone economic calendar. July’s prelim private sector PMIs and 2^nd quarter GDP number were the headline stats of the month.

While June had delivered a less gloomy picture, July delivered a mixed set of stats for the markets to consider.

In the early part of the month, economic data from Germany continued to deliver positive numbers, with factory orders and industrial production seeing further upside.

Mid-month prelim July private sector PMIs from France, Germany, and the Eurozone had also given the majors a boost.

The Eurozone’s Composite PMI rose from 48.5 to 54.8, according to prelim figures.

Late in the month, however, 2^nd quarter GDP numbers for France, Germany, and the Eurozone weighed on the majors.

Germany’s economy contracted by 10.10%, France’s by 13.80%, and the Eurozone’s by 12.10% in the quarter.

From the U.S

While nonfarm payrolls, the weekly jobless claims, and private sector PMI numbers had provided support early in the month, it was the weekly jobless claims, consumer confidence, and 2^nd quarter GDP numbers that weighed late in the month.

2 consecutive weekly jobless claims increases and a 32.9% contraction in the U.S economy weighed on risk appetite at the month-end.

Consumer confidence also weakened in July as the U.S struggled with a 2^nd wave of the COVID-19 pandemic.

Geopolitics and a failure by the U.S government to pass through the 2^nd COVID-19 stimulus package was also market negative.

Monetary Policy

On the monetary policy front, there were no surprises as the ECB left monetary policy unchanged. There had been reports of discord amongst members ahead of the meeting.

The FED also left monetary policy unchanged, while assuring the markets of continued and unwavering support.

The Market Movers

For the DAX: It was a bearish month for the auto sector. Continental and Volkswagen slid by 6.49% and by 7.78% respectively to lead the way down. BMW and Daimler saw more modest losses of 4.14% and 2.64% respectively.

It was a mixed month for the banks, however. Deutsche Bank slid by 10.51%, while Commerzbank ended the month up by 9.63%.

From the CAC, it was a bearish month for the banking sector. BNP Paribas and Credit Agricole fell by 3.53% and by 3.56% respectively, while Soc Gen slid by 12.30%.

It was also a bearish month for the auto sector. Peugeot fell by 5.80%, with Renault tumbling by 11.16%

Air France-KLM and Airbus SE also saw red, with the pair seeing losses of 13.49% and 2.38% respectively.

Corporate earnings contributed to the moves.

On the VIX Index

The VIX slid by 19.62% in July, delivering a 3^rd month in the red out of 4. Reversing a 10.61% rise in June, the VIX ended the month at 24.46.

The VIX had seen 4 consecutive months in the green before the downward trend began in April.

Across the U.S equity markets, the S&P500 rose by 5.51%, with the Dow and NASDAQ gaining 2.38% and 6.82% respectively.

The FED and bank and tech stock earnings provided support amidst a rising number of new COVID-19 cases in the month.

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

An upward trend in the private sector PMIs through to August would need to continue to ease concerns of a further slowdown in the recovery.

The markets would need to continue to see a further pickup in both business and consumer confidence to support consumption.

Consumers would need to see improved labor market conditions, however, to fuel consumption and a service sector-driven economic recovery.

On the monetary policy front, expect the ECB to continue to assure the markets of further support.

From elsewhere, we continue to expect stats from the U.S and China to also garner plenty of attention and have plenty of influence.

Geopolitics and COVID-19 will also remain in focus. In July, Trump had looked to distract U.S voters, which led to a diplomatic spat with China. More of the same could be on the cards in the coming month.

On the Presidential Election front, Trump remains behind in the polls, which suggests more spin and distraction. In the final week of July, Trump had even tweeted a desire to delay the Presidential Election…