22 February 2021

European Stocks End Losing Streak

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News shaping
the markets today

     

What’s happening: European stocks closed higher on Friday, marking an end to their biggest losing streak since October.

What happened: Most sectors ended in positive territory on Friday, as markets reacted to the latest round of earnings and economic reports.

However, the impact of renewed lockdowns was visible in recent economic reports, which showed Eurozone’s business activity contracting for a fourth straight month.

Why it matters: European stocks are still trying to recover a year after the covid-19 first resulted in a sharp downturn.

The pan-European Stoxx 600 index gained 0.5% on Friday, after declining for the previous three sessions, with banking and travel-related stocks leading the rally. Several economically sensitive sectors recorded gains, driven by encouraging earnings reports. However, defensive sectors, including healthcare, traded lower on Friday. The index added 0.2% last week, remaining around 5% short of the record high hit a year earlier.

Tech stocks also outperformed, with chipmakers gaining after BE Semiconductor Industries and Applied Materials issued favourable projections.

Markets look forward to the vaccine-led easing of restrictions and economic recovery pushing stocks higher, especially in sectors that were worst hit by the pandemic.

Investors remained cautious, however, after a report from Bank of America showed that European equity funds had witnessed their highest weekly outflow in the last eight weeks. Although the Eurozone composite PMI improved to 48.1 in February, from 47.8 in the previous month, the reading remained below 50, indicating a contraction in business activity for the fourth consecutive month.

Germany’s composite PMI rose to 51.3 in February, from 50.8 in January, while France’s activity shrank to 45.2, from 47.7 in the prior month.

Corporate earnings remained in focus, with major companies including Renault, Allianz, Hermes International, and Swiss Re reporting their latest results before the opening bell on Friday. Renault reported a loss of €8 billion for 2020, while Hermes International surpassed market estimates driven by 16% sales growth in the fourth quarter.

London’s FTSE 100 rose 0.1% on Friday, while German DAX 30 and French 40 added 0.77% and 0.79%, respectively.

What to watch: With no major economic reports scheduled for release from the Eurozone today, investors may focus on stimulus developments in the US.

Rising covid-19 cases remain a top concern for the markets, with total global infections surpassing 111.3 million.

The Markets Today

     

Crude oil will be in focus today, after closing lower last week.

Context: Crude oil traded lower on Friday amid concerns that US refineries shut by sub-zero temperatures in the southern part of the country will dent crude demand.

Details: Extreme cold weather in the US has impacted around one-third of crude output in the US. Traders remained concerned that the resumption of operations in US refineries will take time even after the big freeze situation abates.

“Refinery outages could be deeper and longer-lasting, especially ahead of the spring maintenance season, as some plants could decide to anticipate planned turnarounds of roughly 500,000bpd on aggregate over the next month,” Citi analysts said in a note.

The Energy Information Administration (EIA) said that crude oil inventories in the US had declined by 7.3 million barrels in the week ended February 12, much higher than the consensus estimate of a decline of 2.4 million barrels.

Markets were concerned about the prospects of a rise in crude supplies by the OPEC+ (Organization of Petroleum Exporting Countries and its allies) group in the coming months.

WTI (West Texas Intermediate) crude futures fell 2.1% to $59.24 per barrel on Friday, following a 1% decline on Thursday. Brent crude futures were down 1.9% at $62.72 a barrel, after losing 0.6% on Thursday. Both benchmark contracts had surged to around 13-month highs last week.

What to watch: Markets will keep an eye on updates around US refineries. The lack of demand from US refiners is expected to result in a build-up of crude inventories over the upcoming weeks.

Other Markets: US indices closed mostly lower on Friday, with the S&P 500 and Nasdaq 100 down by 0.19% and 0.42%, respectively. The Dow Jones index bucked the trend, adding 0.98 points in the session.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s manufacturing confidence index, capacity utilization, tourist arrivals and government debt, Germany’s Ifo business climate indicator, Bank of Russia’s monetary policy report, Brazil’s net payrolls as well as the US Chicago Fed national activity index, CB leading index and Dallas's Fed general business activity index.

 

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