It was a relatively bullish day for the European majors on Monday, which ended a 2-day coronavirus driven losing streak.
The DAX30 rose by 0.49% to lead the way, with the CAC40 and EuroStoxx600 gaining 0.45% and 0.25% respectively.
While there was no particularly good news from the weekend to support the majors, there was no material jump in the coronavirus mortality rate to spook the markets.
China’s equity market sell-off was anticipated as the markets reopened after the extended CNY break. The PBoC’s cash injection to support liquidity likely contributed to the lack of a knee-jerk market reaction to the sell-off.
It’s now wait-and-see mode for the majors, with economic indicators and central banks now expected to do the talking.
On the economic data front, there was also some support from manufacturing PMI numbers for January.
While the majors found support, it was a different story for crude oil prices that tumbled on Monday. The slide came in spite of OPEC announcing possible production cuts to stabilize prices. Concerns over-consumption led to the sell-off at the start of the week, as the spread of the coronavirus continues to weigh on the outlook for global economic growth.
The Stats
It was a busy day on the Eurozone economic calendar on Monday. Economic data included January Manufacturing PMI figures for Spain and Italy.
Finalized Manufacturing PMI numbers from France, Germany, and the Eurozone also provided direction.
In January, the PMI increased from 46.2 to 48.9 in January.
While the sector contracted for a 16th consecutive month, it was the weakest rate of contraction since May-19.
January’s fall in production was the softest since September-19, with falling new orders pinning back output.
Total new business continued to fall as market demand deteriorated further. New export orders were also in decline, with the automotive sector highlighted.
Staffing levels fell for an 8th month-in-a-row, though the rate of decline was marginal.
Optimism hit the highest level since May-18, with stabilization in demand reportedly supporting the improved sentiment.
In January, the finalized manufacturing PMI increased from a prelim 47.8 and December 46.3 to 47.9.
While the manufacturing sector remained in contraction, it was the highest PMI reading since April-19.
The consumer goods category remained the strongest performer at the start of the year, reporting a 2nd consecutive month of marginal growth.
While production and new orders continued to fall, the rate of decline eased from the end of 2019.
The rate of decline in new orders was the slowest in over a year.
Manufacturing firms continued to reduce staffing levels, with the rate of job shedding still marked at the turn of the year.
Confidence across the sector jumped to the highest level since August-18.
All 8 countries covered by the survey reported higher recordings compared with December.
Greece was the strongest performer, with growth hitting a 5-month high.
Ireland and France also reported expansion though at modest rates.
Germany was the weakest performing country in spite of the PMI hitting an 11-month high.
Earlier in the day, China’s Caixin Manufacturing PMI slipped from 51.5 to 51.1, which had a muted impact ahead on the majors.
Later in the day, the U.S ISM Manufacturing PMI jumped from 47.8 to 50.9 in January, providing further support to the majors late on.
The Market Movers
For the DAX: It was a mixed start to the week for the auto sector. Volkswagen led the way, gaining 0.84%, with BMW (+0.03%) and Daimler (+0.02%) also avoiding the red. Continental bucked the trend, however, falling by 0.27%.
It was also a mixed day for the banks. Commerzbank rose by 0.54%, while Deutsche Bank slid by 1.34%.
Deutsche Lufthansa found support, gaining 1.67%. The rise came in spite of lingering concerns over the coronavirus. Elsewhere, Infineon Technologies eked out a 0.15% gain, while Wirecard rallied by 2.36%.
From the CAC, it was a bullish day for the banks. BNP Paribas rose by 0.61%, with Credit Agricole and Soc Gen up by 0.90% and 0.21% respectively.
It was a mixed day for the French auto sector, however. Peugeot rose by 1.56%, while Renault slid by 1.11%
Air France-KLM closed out the day with a 1.05% gain.
On the VIX Index
Risk aversion turned to bargain hunting on Monday, leaving the VIX in the red. Following a 21.63% jump on Friday, the VIX fell by 4.62% to end the day at 18.0.
While concerns over the effects of the coronavirus on the global economy lingered, economic data managed to draw attention at the start of the week.
From the U.S, the market’s preferred ISM Manufacturing PMI jumped from 47.8 to 50.9, offsetting the market reaction to last Friday’s Chicago PMI.
The story of the day was undoubtedly Tesla Inc., which surged by 19.89% on Monday.
The Day Ahead
It’s a quiet day on the Eurozone economic calendar. Spanish unemployment change figures and Italian inflation figures are due out later today.
We would expect the numbers to have a muted impact on the European majors today, however.
Later in the day, December factory order figures out of the U.S will provide direction.
Outside of the numbers, news updates and market sentiment towards the coronavirus will also influence.
There’s also Brexit chatter and the threat of the EU and Britain failing to reach a trade agreement to consider.
In the futures markets, at the time of writing, the DAX was down by 22 points, while the Dow up by 20 points.
