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European Equities: COVID-19 Updates Deliver Support, with Geopolitics also in Focus

Bob Mason

Economic Calendar:

Tuesday, 19th May

German ZEW Current Conditions (May)

German ZEW Economic Sentiment (May)

Eurozone ZEW Economic Sentiment (May)

Wednesday, 20th May

German PPI (MoM) (Apr)

Eurozone Core CPI (YoY) (Apr) Final

Eurozone CPI (MoM) (Apr) Final

Eurozone CPI (YoY) (Apr) Final

Eurozone Consumer Confidence Flash

Friday, 22nd May

French Manufacturing PMI (May) Prelim

French Services PMI (May) Prelim

German Manufacturing PMI (May) Prelim

German Services PMI (May) Prelim

Eurozone Manufacturing PMI (May) Prelim

Eurozone Markit Composite PMI (May) Prelim

Eurozone Services PMI (May) Prelim

The Majors

It was a bullish end to a bearish week for the European majors. The DAX30 rose by 1.24% to lead the way, while the CAC40 and EuroStoxx600 saw more modest gains of 0.11% and 0.47% respectively.

Economic data out of China on Friday provided the European majors with much-needed support. Figures released ahead of the European open showed that industrial production rose by 3.5% in April, year-on-year. Economists had forecast a 1.5% rise. This was the only positive, however, with fixed-asset investment and retail sales continuing to slide.

On the geopolitical front, rising tensions between the U.S and China did limit the upside for the majors on the day.

The news of the U.S government implementing steps to prevent the shipment of chips to Huawei pinned back the majors late in the day.

In response, China threatened to target U.S companies with bans should the U.S government proceed with the blocking of chip supply.

The rise in escalation came after a lull mid-week that had allowed the markets to focus on economic data and central bank chatter.

While chatter from Beijing and Washington weighed, hopes of a pickup in economic activity provide support as lockdown measures eased further.

A slight uptick in new coronavirus cases over the week was not enough to force governments to reverse the easing of measures.

The Stats

It was a busy day on the Eurozone economic calendar on Friday. Key stats included 1st quarter GDP numbers for Germany and the Eurozone.

For Germany, the economy contracted by 2.2% in the 1st quarter, according to 1st estimate figures, which was in line with forecasts.

According to 2nd estimate figures, the Eurozone’s economy contracted by 3.8% in the 1st quarter, which was in line with 1st estimates.

It was a different story for the year-on-year figures, however. Germany’s economy contracted by 1.9%, which was worse than a forecasted contraction of 1.6%. In contrast, the Eurozone’s economy contracted by 3.2%, coming in ahead of a 1st estimate 3.3%.

Finalized French and Italian April inflation figures and Eurozone trade data for March had a muted impact on the day.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Friday. Continental rallied by 3.49% to lead the way, with Volkswagen gaining 2.87%. While Daimler also saw green, with a 1.05% rise, BMW slid by 2.63% to buck the trend on the day.

It was also a bearish day for the banks, however. Deutsche Bank slid by 3.18%, with Commerzbank falling by 2.44%.

Deutsche Lufthansa slid by 4.56%, reversing a 4.84% rally from Thursday.

From the CAC, it was a mixed day for the banking sector following Thursday’s losses. BNP Paribas and Credit Agricole rose by 1.18% and 1.67% respectively, while Soc Gen fell by 0.66%.

It was a bullish day for the auto sector, however, with Peugeot and Renault seeing gains of 2.90% and 0.83% respectively.

Air France-KLM rose by 1.71%, while Airbus SE fell by 1.14 at the end of the week.

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Friday. Following on from a 7.57% fall on Thursday, the VIX fell by 2.21% to end the day at 31.9.

Rising tension between the U.S and China and some particularly dire economic data had given the VIX a boost early in the day.

A rebound across the U.S equity markets, however, led to a reversal through the 2nd half of the day.

While economic data was particularly disappointing, hopes of a pickup in economic activity supported the U.S majors on Friday.

On Friday, the S&P500 rose by 0.39%, with the Dow and NASDAQ seeing gains of 0.25% and 0.79% respectively.

The Day Ahead

It’s a quiet start to the week on the Eurozone economic calendar. There are no material stats from the Eurozone or the U.S to provide the majors with direction.

A lack of stats will leave the European majors in hands of COVID-19 news, geopolitics, and any chatter from EU member states on fiscal support.

A downward trend in new coronavirus cases and a continued easing of lockdown measures supported in the futures early on.

The Latest Coronavirus Figures

On Sunday, the number of new coronavirus cases rose by 75,594 to 4,797,827. On Saturday, the number of new cases had risen by 104,393. The daily increase was lower than Saturday’s rise and 78,198 new cases on the previous Sunday.

France, Germany, Italy, and Spain reported 2.500 new cases on Sunday, which was down from 3,490 new cases on Saturday. On the previous Sunday, 3,549 new cases had been reported.

From the U.S, the total number of cases rose by 18,838 to 1,526,611 on Sunday. On Saturday, the total number of cases had risen by 25,939. On Sunday, 10th May, a total of 20,329 new cases had been reported.

In the futures markets, at the time of writing, the DAX was up by 146.5 points, with the Dow up by 197 points.

This article was originally posted on FX Empire