European Equities: A Week in Review – 04/02/22

The Majors

It was another bearish week for the European majors in the week ending 4^th February.

The DAX slid by 1.43%, with the CAC40 and the EuroStoxx600 ending the week down by 0.21% and by 0.73% respectively.

Hawkish central bank chatter and a Bank of England rate hike weighed on the majors in the week. For the European majors, however, it was a more hawkish than expected ECB President Lagarde that sent the majors into the deep red.

Adding to the market angst was rising tensions in Eastern Europe on news of the U.S sending troops to the region. A tech stock rout delivered further pressure on the European markets in the week.

The Stats

It was a particularly busy week for the markets. Key stats included inflation, private sector PMIs, and German retail sales and factory order numbers.

Prelim inflation figures for January continued to defy the ECB’s transitory view. The Eurozone’s annual rate of inflation picked up from 5.0% to 5.1% in January.

Private sector PMIs were mixed, with service sector activity impacted by the Omicron strain, while manufacturing sector activity accelerated. In January, the Eurozone’s Manufacturing PMI rose from 58.0 to 58.7, while the services PMI declined from 53.1 to 51.1. As a result, the Composite PMI fell from 53.3 to 52.3 in January.

Economic data from Germany did impress in the week, however. A bounce back in private sector activity was accompanied by a fall in the unemployment rate and sharp increase in factory orders.

While the stats provided direction, it was a hawkish ECB that contributed to the downside.

From the U.S

Manufacturing PMI and ADP nonfarm payrolls were in focus early in the week. It was a weak set of numbers, with the ISM Manufacturing PMI falling from 58.8 to 57.6 and the ADP reporting a 301k fall in nonfarm payrolls.

On Thursday, initial jobless claims fell from 261k to 238k in the week ending 28^th January. Service sector PMI figures were weaker, however, with the ISM Non-Manufacturing PMI falling from 62.3 to 59.9.

The main even of the week, was the release of January’s nonfarm payrolls on Friday. Nonfarm payrolls increased by 467k following a 510 rise in December. In spite of the increase, the unemployment rate rose from 3.9% to 4.0%, as the participation rate climbed from 61.9% to 62.2%.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental rose by 0.68% to buck the trend. BMW and Daimler fell by 2.97% and by 2.92% respectively, however, with Volkswagen sliding by 4.06%

It was a bullish week for the banking sector. Deutsche Bank rallied by 13.99%, with Commerzbank jumping by 14.78%.

From the CAC, it was also a bullish week for the banks. Soc Gen rose by 3.59%, with BNP Paribas and Credit Agricole ending the week with gains of 2.42% and 2.41% respectively.

The French auto sector had a bearish week, however. Stellantis NV slid by 3.55%, with Renault declining by 0.81%.

Air France-KLM ended the week up by 0.60%, while Airbus fell by 0.95%.

On the VIX Index

It was a 2^nd consecutive week in the red for the VIX in the week ending 4^th February, marking a 2^nd fall in 5-weeks.

Following a 4.12% decline from the previous week, the VIX slid by 16.05% to end the week at 23.22.

3-days in the red from 5 sessions, which included a 10.23% slide on Monday and an 11.56% tumble on Tuesday delivered the downside.

For the week, the NASDAQ rose by 2.38%, with the Dow and the S&P500 ending the week up by 1.05% and by 1.55% respectively.

The Week Ahead

It’s quieter week ahead on the Eurozone economic calendar. German industrial production and trade data will be in focus. With little else for the markets to consider, expect market sensitivity to the numbers.

From the U.S, January inflation and weekly jobless claims figures will also provide direction in the 2^nd half of the week.

From elsewhere, private sector PMI numbers from China will draw interest as the China markets reopen after last week’s holiday.

Away from the economic calendar, geopolitics will also influence, with China and Russia in focus.