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European Equities: A Week in Review – 11/10/19

Bob Mason

The Majors

It was a bullish week for the European majors, with the DAX30 rallying by 4.15% to lead the way. The CAC30 and EuroStoxx600 weren’t far behind, with gains of 3.23% and 3.00% respectively.

After a bearish start to the week, 3 consecutive days in the green delivered, with the lion’s share of the gains coming on Friday.

Economic data through the week failed to weigh on the majors, with geopolitics delivering the upside in the week.

Progress on Brexit negotiations and positive updates from the U.S – China trade talks drove demand for the European majors.

U.S President Trump said on Friday that discussions were very good and that there were warmer feelings at the latest talks,

On Brexit, positive updates from Johnson, Irish Prime Minister Varadkar and from the EU in the 2nd half of the week also supported.

Monetary Policy

The ECB’s monetary policy meeting minutes on Thursday had little influence on the majors. While having little influence, the minutes did reveal division amongst members on what lies ahead. Recent ECB member commentary had already alerted the markets of a rift amongst members, with a number of key members against the reintroduction of bond purchases.

The Stats

It was a relatively quiet week on the Eurozone economic calendar. Through the week, Germany’s August factory orders and trade data were negative for the DAX, while an unexpected pickup in industrial production was positive.

On Monday, factory orders fell by 0.6% in August, following on from a 2.7% slide in July. A 0.3% rise in industrial production, reversing a 0.4% fall in July, had little impact on Tuesday, as market jitters ahead of trade talks pinned back the majors.

A narrowing in Germany’s trade surplus from €20.5bn to €18.1 did little to dampen demand for riskier assets on Thursday.

The positive updates from both Brexit and trade talks in Washington drove demand for the European majors on Thursday and Friday.

At the end of the week, finalized inflation figures out of Germany and Spain also had a muted impact, with further updates on Brexit and trade talks driving the majors on the day.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Volkswagen led the way, rallying by 8.55%. Daimler and BMW also saw solid gains, rising by 6.25% and 3.08% respectively. Continental trailed the pack, however, rising by just 0.02%.

It was also bullish for the banking sector. Deutsche Bank gained 3.98%, with Commerzbank rallying by 4.92%, to partially reverse last week’s 8.42% tumble.

While the stats were on the weaker side, a trade agreement would ease concerns over the economic outlook.

From the CAC, the banks also found strong support. BNP Paribas and Soc Gen led the way, rallying by 8.19% and by 7.95% respectively. Credit Agricole trailed with a 6.10% gain. French autos saw green following 3 consecutive weeks in the red. Peugeot rallied by 6.52%, with Renault up by 6.10%.

On the VIX Index

The VIX Index fell by 8.57% in the week ending 11th October. Following on from a 0.7% fall from the previous week, the VIX ended the week at 15.6.

After a Tuesday 13.6% jump in the VIX, it was red through the rest of the week. Sentiment towards Brexit and U.S – China trade talks offset a negative bias on the economic data front.

The Week Ahead

It’s a relatively busy week on the Eurozone economic calendar. Key drivers include German and, Eurozone economic sentiment figures on Tuesday. The Eurozone’s industrial production and trade data due out on Monday and Wednesday will also influence.

From elsewhere, China’s trade data and industrial production and 3rd quarter GDP numbers on Friday will also influence risk appetite.

While economic data is on the heavier side, continued progress on Brexit and the U.S – China trade talks will buffer the effect of any disappointing figures.

A delay to tariffs that were due to be introduced on 15th October, was key in the week.

Looking at the forecasts, Eurozone and China economic stats are skewed to the negative.

This article was originally posted on FX Empire