It was a bullish week for the European majors in the week ending 1st May, with the DAX30 rallying by 5.08% to lead the way. The CAC40 and EuroStoxx600 saw more modest gains of 4.07% and 3.17% respectively.
Economic data and the ECB influenced late in the week, with a run of 3 consecutive days coming to an end on Thursday. Economic data from the Eurozone and the U.S and some dire economic projections from the ECB led to a pullback on Thursday.
While the stats and the ECB influenced, market sentiment towards the COVID-19 pandemic remained a key driver.
The easing of lockdown measures across EU member states and the downward trend in new cases provided support.
Adding to the upside was news of successful results from the Western trials of COVID-19 treatment drug remdesivir earlier in the week.
The Stats
It was a busy week on the Eurozone economic calendar, though the markets needed to wait until Thursday for the data deluge.
Key stats included 1st quarter GDP numbers out of France, Spain, and the Eurozone and German unemployment figures.
In France, the economy contracted by 5.8% in the 1st quarter, which was the largest contraction since records began in the late 1940s.
Spain’s economy contracted by 5.2%, with the Eurozone’s economy contracting by 3.8% according to Eurostat. This was the largest contraction since the establishment of the Euro bloc. Compared with the same quarter of the previous year, the GDP decreased by 3.3%.
From Germany, unemployment figures reflected the effects of the April lockdown, with unemployment surging by 373k. Germany’s unemployment rate increased from 5.0% to 5.8% as a result.
March unemployment and prelim April inflation figures for the Eurozone had a muted impact in the week.
There were also March retail sales figures for France and Germany and French and Spanish inflation figures that the markets brushed aside.
From the U.S, another surge in the weekly initial jobless claims added to the negative sentiment. Initial jobless claims surged by another 3.839m in the week ending 24th April. Coupled with the 4.8% contraction in the U.S economy in the 1st quarter, the continued surge in claims reversed hopes of a v-shaped rebound.
On the monetary policy front, the ECB was in action on Thursday. The ECB held back from expanding its bond-buying program while lowering borrowing costs for banks. As expected Lagarde continued to attempt to force EU member states to deliver a sizeable stimulus package.
Lagarde followed on from the IMF forecasts weeks earlier by projecting quite dire GDP forecasts for the year, which added to the downside on the day.
While lockdown measures are easing, the impact of COVID-19 will likely be felt through May and possibly early June. That suggests that GDP numbers will likely be more aligned with the more pessimistic forecasts.
Lagarde predicted that the Eurozone economy would contract by between 5 and 12% in 2020.
The Market Movers
From the DAX, it was a particularly bullish week for the auto sector, which managed to reverse losses from the previous week. Daimler surged by 13.38% to lead the way, with BMW and Continental rallying by 9.71% and 9.23% respectively. Volkswagen saw a more modest 7.51% gain.
It was also a bullish week for the banking sector in spite of a bearish end to the shortened week. Commerzbank rallied by 9.62%, while Deutsche Bank surged by 22.91%.
Lufthansa managed to reverse the previous week’s 13.41% loss with a 13.14% gain. Support from the government delivered the upside in the week.
From the CAC, it was a bullish week for the banks. BNP Paribas and Credit Agricole rallied by 9.01% and by 11.31% respectively, while Soc Gen rose by 5.47%.
The French auto sector also found support. Renault rallied by 13.19%, while Peugeot ending the week up by 5.49%.
Air France-KLM and Airbus rose by 4.15% and 10.58% respectively.
On the VIX Index
A run of 5 consecutive weeks in the red came to an end for the VIX. In the week ending 1st May, the VIX rose by 3.51%. Partially reversing ay 5.82% decline from the previous week, the VIX ended the week at 37.2.
A bearish end to the week for the global financial markets delivered the upside for the VIX. 2 consecutive days in green reversed losses from earlier in the week as economic data and earnings weighed on risk appetite.
At the end of the week, profit warnings from the likes of Amazon.com and Apple.Inc sent the majors into reverse. Economic data in the 2nd half of the week also overshadowed positive updates on COVID-19 treatment drug remdesivir.
Adding to the market angst on Friday was Trump’s renewed attacks on China and blaming the Chinese government for spreading the coronavirus.
The S&P500 ended the week down by 0.21%, with the NASDAQ and the Dow falling by 0.22% and 0.34% respectively.
The Week Ahead
It’s another busy week ahead on the Eurozone economic calendar. Key stats include April private sector PMIs for Italy and Spain on Monday and Wednesday. Finalized PMIs for France, Germany, and the Eurozone are also due out.
Following the prelim numbers, we can expect Italy and Spain’s PMIs to garner plenty of interest. Both member states were most adversely affected by lockdown measures.
German factory orders and trade figures for March and Eurozone retail sales figures for March are also due out. We expect the stats to have a muted impact in the week in the week, however. Expectations are for 2nd quarter GDP numbers to be far worse than 1st quarter numbers. This further removes any interest in 1st quarter stats.
From elsewhere, expect April trade data out of China and a string of U.S stats to also influence.
U.S ISM non-manufacturing PMI and nonfarm payroll figures from the U.S will likely test risk sentiment.
Outside of the numbers, expect corporate earnings and updates on new coronavirus cases and plans to further ease lockdown measures to be of influence. Positive updates on the testing of treatment drug remdesivir are also going to be needed.
On the geopolitical risk front, Trump’s renewed attack on China and rising tensions in the Middle East will also need monitoring.
