European Equities: A Month in Review – March 2021


The Majors

It was another bullish month for the European majors in March, following on from a February recovery from of January losses.

The DAX30 rallied by 8.86%, with the CAC40 and the EuroStoxx600 ending the month with gains of 6.38% and 6.08% respectively.

Impressive economic data and market sentiment towards the U.S economy drove demand for riskier assets.

Central bank chatter also delivered support as market angst over rising borrowing costs and a possible shift in monetary policy stance abated in the month.

Pegging the majors back late in the month, however, was a spike in new COVID-19 cases and a reintroduction of lockdown measures across some EU member states.

A lack of adequate vaccination supply saw tensions between the EU and the UK rise as AstraZeneca continued to deliver to the UK.

There was talk of banning vaccine exports from the EU ahead of an unscheduled EU Summit. The final decision, however, was to hold back from any ban while looking to push suppliers to meet EU orders.

In a busy month, there was also a build up in tension between China and the West over Xinjiang cotton and forced labor.

The Stats

It was a busy month on the Eurozone economic calendar and a particularly important one.

The effects of both fiscal and monetary policy support were evident in manufacturing sector activity in March.

Both Germany and the Eurozone’s manufacturing PMIs hit record highs in the month as demand rebounded. An easing of lockdown measures supported the pickup in manufacturing sector activity late in the quarter.

While the services sector continued to contract at Eurozone level, Germany’s services sector returned to expansion in March.

Other key stats in the month included business and consumer confidence figures.

Both were on the rise off the back of hopes of an end to the COVID-19 pandemic and pickup economic activity.

In spite of this consumption remained in issue, with retail sales from Germany and consumer spending from France continuing to disappoint.

While consumption disappointed, prelim inflation figures for March continued to point to a pickup in inflationary pressures.

From the U.S

Economic data was also skewed to the positive in the month.

Key in the month were improving labor market conditions and a continued pickup in private sector activity.

For February, nonfarm payrolls increased by 379k, following a modest 166k increase in January. While the participation rate held steady at 61.4%, the unemployment rate eased from 6.3% to 6.2%.

Jobless claim figures were also pointing to an improvement in labor market conditions.

In the week ending 15th March, initial jobless claims fell to sub-700k levels for the first time since the March 2020 jump from sub-300k to 3,283k in the week ending 20th March 2020.

Initial jobless claims had hit an all-time high of 6,606k back in the week ending 2nd April 2020.

Improving labor market conditions supported a pickup in consumer confidence in the quarter.

The Michigan Consumer Sentiment Index increased from 76.8 to 84.9 in March, with the CB Consumer Confidence Index jumping from a January 88.9 to a March 109.7.

Other stats in the month delivered mixed results, however.

Personal spending fell by more than expected in February, with inflationary pressures also softening in the month.

With private sector activity accelerating, core durable goods and durable goods orders had a muted impact on the markets. This was also the case for factory order and trade data.

Even a larger than expected slide in retail sales failed to spook the markets in the month.

Monetary Policy

The stars were aligned for riskier assets, with the FED delivering assurances of an unwavering hold on policy. This came in spite of particularly bullish growth forecasts for 2021.

FED Chair Powell also delivered testimony and speeches in the month, maintaining his stance on monetary policy.

The ECB addressed concerns over rising borrowing costs by committing to a ramp up in government bond purchases. The promise supported the European majors in the month.

The Market Movers

For the DAX: It was a mixed month for the auto sector in March. Volkswagen surged by 37.96%, driven by updates on the firm’s EV targets.

BMW and Daimler also saw solid gains of 23.59% and 14.45% respectively. while Continental fell by 5.17%.

It was also a mixed month for the banks. Deutsche Bank ended the month flat, while Commerzbank fell by 3.68%.

From the CAC, it was another bullish month for the banking sector. BNP Paribas and Credit Agricole rose by 5.28% and by 6.37% respectively. Soc Gen led the way once more, however, rallying by 8.72%.

It was also a mixed month for the auto sector. Renault fell by 0.51%, while Stellantis NV ended the month up by 12.37%.

Air France-KLM struggled amidst the fresh spike in new COVID-19 cases, sliding by 8.60%, while Airbus SE rose by 0.66%.

On the VIX Index

It was a 2nd consecutive month in the red for the VIX in March, delivering a 4th monthly decline in 8-months. Following on from a 15.53% slide in February, the VIX tumbled by 30.59% to end the month at 19.40.

In March, the Dow rallied by 6.62%, with the NASDAQ and the S&P500 gaining 0.41% and 4.24% respectively.

The Month Ahead

Going into the 2nd quarter, we can expect greater focus on the Eurozone economic calendar. While the markets will look for manufacturing sector activity to deliver, service sector conditions will also need to improve further.

The markets will also be looking for improved labor market conditions to support consumption and the services sector.

Much, however, will depend on the availability of COVID-19 vaccines and government plans on containing the virus.

From the U.S, nonfarm payrolls, service sector activity, spending, and consumer confidence will continue to remain key areas of focus.

Out of China, trade data and private sector PMIs will also provide direction.

On the monetary policy front, expect any further hawkish chatter to support the current trends. Any unexpectedly dovish chatter, however, would test the majors at current levels.

Away from the economic calendar, geopolitics will also influence. In particular, the markets will be looking the EU and the U.S to look to ease tensions with China.

Geopolitically, Iran’s nuclear agreement also remains in the spotlight.

This article was originally posted on FX Empire