It’s a quieter day on the economic calendar. The ECB Economic Bulletin and U.S stats will influence along with chatter from Capitol Hill.
Thursday, 4th February
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Friday, 5th February
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It was a mixed day for the European majors on Wednesday. The DAX30 and EuroStoxx600 rose by 0.71% and by 0.33% respectively, while the CAC40 ended the day flat.
Market sentiment remained optimistic of a speedy economic recovery mid-week, in spite of extended lockdown measures.
Upbeat service sector PMI figures from the U.S coupled with expectations of a sizeable stimulus package supported the majors.
Corporate earnings also delivered, with positive earnings outlooks supporting the market’s outlook on the economic recovery.
Economic data from the Eurozone did pin back the majors early in the session, however.
It was yet another busy day on the economic calendar. Key stats January service sector PMI figures for Italy and Spain and finalized services and composite PMI numbers for the Eurozone. Finalized French and German Services and Composite PMIs also drew attention early in the session.
For Italy and the Eurozone, prelim January inflation figures were also in the mix.
Member State PMIs
Spain’s services PMI slid from 48.0 to 41.7 in January versus a forecasted decline to 45.3. In December, the PMI had jumped from 39.5 to 48.0.
According to the January survey,
- The COVID-19 pandemic and snowstorms hit the sector.
- New work from home and overseas fell again, leading to an 11th consecutive monthly fall in employment.
Italy’s services PMI rose from 39.7 to 44.7 versus a forecasted decline to 39.5. In December, the PMI had inched up from 39.4 to 39.7.
According to the January Survey,
- Rates of decline in business activity and new business fell at the slowest pace for 3-months and 4-months respectively.
- Weaker output was attributed to falling inflows of new work amid weak client demand.
France’s finalized PMI came in at 47.3, which was up from a prelim 46.5 while down from a December 49.1. In December, the PMI had risen from 39.8 to 49.1.
According to the finalized January Survey,
- A fresh decline in new orders as a result of COVID-19 containment measures weighed.
- While new business was in decline, staff numbers increased for the 1st time since Feb-2020.
- Firms remained optimistic while less optimistic than December’s 20-month high.
From Germany, the finalized PMI came in at 46.7, which was downwardly revised from a prelim 46.8 and December 47.0. In December, the PMI had risen from 46.0 to 47.0.
According to the finalized Survey,
- Business activity fell for a 4th consecutive month.
- New orders were in decline, with new export business weighing.
- In spite of this employment rose at its strongest pace since Feb-2020.
- Year-ahead expectations was also on the rise, hitting a 23-month high.
The Eurozone PMIs
For the Eurozone, the finalized Services PMI came in at 45.4, which was revised up from a prelim 45.0. In December, the PMI had risen from 41.7 to 46.4.
The Composite PMI came in at 47.8, which was revised up from a prelim 47.5. In December, the Composite had risen from 45.3 to 49.1.
According to the finalized January Survey,
- Services was a drag on the Eurozone economy, with the sector contracting for a 5th consecutive month.
- Across the largest Eurozone members, only Germany recorded a rise in private sector output in January. This was in spite of German private sector growth softening to a 7-month low.
- COVID-19 restrictions remained the main cause of falling new work across the Eurozone.
- Incoming new work fell for a 4th month in a row.
- Staffing levels fell for an 11th consecutive month, albeit it at the weakest rate of decline in 11-months.
- Firms remained optimistic, with hopes of a successful rollout of a COVID-19 vaccine underpinning confidence.
The Eurozone’s annual rate of inflation accelerated to 0.9% in January, according to prelim figures. Economists had forecast an annual rate of inflation of 0.5%. In December, consumer prices had fallen by 0.3% year-on-year.
Core inflationary pressures also picked up, with the core annual rate of inflation accelerating from 0.2% to 1.4% in January. Economists had forecast a core annual rate of inflation of 0.2%.
According to Eurostat,
- Food, alcohol, & tobacco is expected to have the highest annual rate in January (1.5%, compared with 1.3% in December).
- Services is forecast to have an annual rate of 1.4%, with non-energy industrial goods also expected to have an annual rate of 1.4%.
- Energy prices are forecasted to fall by 4.1%, the rate of decline easing from 6.9% in December.
Of less influence, were Italy’s prelim inflation figures that were released alongside the Eurozone’s inflation numbers.
From the U.S
The market’s preferred ISM Non-Manufacturing PMI figures for January were in focus along with ADP Nonfarm Employment Change numbers.
In January, the ISM Non-Manufacturing PMI rose from 57.7 to 58.7, coming in ahead of a forecasted 56.8.
The ADP reported 174k nonfarm payroll jobs added in January, reversing a 78k decline in December.
Of less influence on the day were the Markit’s finalized services and Composite PMI numbers for January.
The Market Movers
For the DAX: It was a bullish day for the auto sector on Wednesday. Daimler surged by 6.87%, with Volkswagen rising 1.79% to lead the way. BMW and Continental saw relatively modest gains of 0.63 % and 0.87% respectively.
It was also bullish day for the banks. Deutsche Bank and Commerzbank rose by 1.10% and by 1.22% respectively.
From the CAC, it was a bullish day for the banks. Soc Gen and BNP Paribas rose by 0.74% and by 0.71%. respectively, with Credit Agricole gaining 0.78%.
It was also a bullish day for the French auto sector. Stellantis NV rose by 0.26%, with Renault rallying by 4.77%.
Air France-KLM eked out a 0.10% gain, with Airbus SE ending the day up by 1.38%.
On the VIX Index
It was a 3rd consecutive day in the red for the VIX on Wednesday. Following on from an 15.48% slide on Tuesday, the VIX fell by 10.37% to end the day at 22.91.
The Dow and the S&P500 rose by 0.12% and by 0.10% respectively, while the NASDAQ fell by 0.02%.
The Day Ahead
It’s a relatively quiet day ahead on the European economic calendar. German construction PMI figures and Eurozone retail sales figures are due out later today.
Following disappointing retail sales figures from Germany, a more marked decline than forecasted would test support for the majors.
From the ECB, the Economic Bulletin will be the key driver on the day, however. Following some caution during the ECB monetary policy press conference, any talk of a gloomier economic outlook would test the market’s optimism.
Late in the session, the weekly jobless claims and December factory order numbers from the U.S will also provide direction.
Away from the economic calendar, positive COVID-19 vaccine news and progress towards a U.S stimulus package will also influence. On the stimulus front, it will boil down to the anticipated size of the package.
In the futures markets, at the time of writing, the Dow Mini was up by 9 points, with the DAX30 up by 25 points.