• York Investment & Finance

Global Markets Overview: Western Europe

By John Taylor, Analyst at the York IFS Global Market Telegraph

European stock indices posted their best weekly gain since November on vaccine optimism and hopes of further stimulus from the US. Facing economic and political crises, Italy have called upon Mario Draghi to form a new government, whilst financial markets continue to move toward Europe post-Brexit.

European equities rose this week as hopes increased on Congress approving further stimulus in the US and vaccine optimism. The pan-European STOXX Europe 600 posted its best weekly gain since November with a rise of 3.46%. Germany’s Xetra DAX and France’s CAC 40 Index all recorded modest returns, but it was Italy’s FTSE MIB Index which outshone and rallied 7% after Mario Draghi, former president of the ECB, was announced to form a new Italian government. [​1]

The Eurozone’s economy dropped into a double-dip contraction during the fourth quarter last year, with Eurostat’s initial estimates suggesting GDP fell by 0.7% compared with the previous quarter.[​2] However,the results exceeded economists’ expectations which fuelled the rally in stock prices. The Eurozone has been relatively harder hit by coronavirus and with new lockdown restrictions, the bloc is not expected to return to pre-pandemic output levels until mid-2021. Coupled with a botched vaccine rollout compared to the speed of the UK and US, the EU Commission has recently come under scrutiny, as many countries are faced with stagnating economies.

Facing a health and economic crisis Italy’s president, Sergio Mattarella, has called for former president of the ECB, Mario Draghi, to form a new government in hopes to unite the country.[3] Following the collapse of its coalition government last month, Mr Draghi’s task will begin with political consultations with a wide spectrum of Italy’s political parties to achieve backing to progress with a unified government that can tackle important issues including vaccine rollout and the allocative spending of the €200bn in loans and grants from the EU’s recovery fund. [​4]

The knock-on effect of Brexit on the UK’s financial services industry has come to the fore again this week as London’s boutique investment managers struggle to negotiate new rules and make arrangements to continue serving European clients. Larger investment groups prepared by setting up subsidiaries in EU financial hubs to continue access with the European market, however, smaller managers with less resources have struggled.[5] Furthermore, announcements that EU carbon trading is set to move from London to Amsterdam marks the latest market to move away from the UK post-Brexit.

Earnings were mixed with Unilever dropping 6.2% after reporting a disappointing sales growth target, however, there was significant differences between divisions.[​6] The group highlighted intent to shift focus toward high-growth markets such as hygiene and sustainable foods, which has been a common theme throughout this current earnings season as companies look for growth opportunities post-Covid19.[​7] Oil majors BP and Shell weighed on markets, as Shell reported its lowest annual profit in over two decades, reflecting last year’s drop in oil prices. These companies highlighted plans to invest further in electricity to hit carbon neutral targets by 2050.[​6] ​ On a positive note, Banks gained as investorsanticipate negative interest rates, especially in the UK.

This article was first published in the University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 2 in late February 2021.

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References: [1] https://www.troweprice.com/personal-investing/resources/insights/global-markets-we ekly-update.html#Europe [2]​ https://www.ft.com/content/f8efe708-3c22-493b-88bd-855ec6d98522 [3]​ https://www.ft.com/content/e19d5962-3b35-4b7e-a6d6-46c87bd80174 [4]​ https://www.ft.com/content/9022639f-9b88-40fe-9875-1d4a282ac5e4 [5]​ https://www.ft.com/content/e8f51cdb-39e9-4a82-aa95-a1120c351db1 [6] https://www.reuters.com/article/europe-stocks/update-2-disappointing-earnings-upda tes-weigh-on-ftse-100-italian-shares-shine-idUSL4N2KA40V [7] https://www.edmond-de-rothschild.com/en/news/news/v2/8230-prospects-are-sudde nly-looking-brighter


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