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Eurozone Equity Market Returns          Q1          LTM

DAX 30 (Germany)                                    9.2%      - 4.7%

CAC 40 (France)                                        13.4%      7.0%

FTSE MIB (Italy)                                        16.5%     - 2.5%

IBEX 35 (Spain)                                           8.9%       0.3%

MSCI Europe (ex-UK) Index                     12.5%      4.0%


  • Data mixed, but GDP respectable at 0.4% in Q1
  • ECB policy turns dovish
  • Unemploymnet falls, however structural issues remain
  • European markets rally, led by Italian equities

Eurozone Composite PMIs continued to drop in March, however GDP for Q1 confirmed at respectable +0.4% quarter-on-quarter. Notable bright spots included +0.7% growth in Spain, +0.3% growth in France despite the yellow vest protests and Italy exited recession, growing at +0.2% aided by increasing fiscal stimulus. Growth was driven by a robust service sector, indicating to solid domestic demand driven by falling unemployment, higher wages and greater fiscal spending. The service sector was stronger than expected in March at 53.3, up from February's reading of 52.8. New business volumes grew at their strongest pace in four months, with firms taking on additional staff at a solid rate. However, factories in the Eurozone had their worst month for almost six years in March, with manufacturing PMI declining for an eighth month, coming in at 47.5 down from February’s 49.3. The contrasting reading for manufacturing and services suggests that the export-dependent manufacturing sector is likely being impacted by external transitory factors such as new car emission regulation, US-China trade dispute and Brexit.

The European Central Bank (ECB) turns more supportive. The ECB revised their guidance to now leave interest rates unchanged at least to the end of 2019, supporting credit growth within the region. Following the announcement, markets pushed out the probability of an interest rate rise to 2021 at the earliest. The ECB also announced a new round of cheap financing for the banking sector, in an effort to promote loan growth to small & medium sized companies and support the wider European economy.

Eurozone unemployment lowest in decade. Declining unemployment and gradually rising wages are supporting household consumption with retail sales rising by +2.8% year-on-year. The eurozone jobless rate continues to fall hitting 7.7%, its lowest level since the global financial crisis in 2008. Contrasting fortunes remain with the youth unemployment worryingly high at 16% and striking geographical divergence, with Germany (3.2%) and Netherlands (3.3%) experience the lowest unemployment rates whilst Greece (18.5%) and Spain (14.0%) the highest. This is politically problematic and supports the need for European institutions, both the ECB and European governments, to maintain economically supportive policy until the imbalances are corrected.

Eurozone equities enjoyed strong gains in the first quarter, rebounding from weakness at the end of 2018. European equities followed global equities higher as investor sentiment turned positive. The ECB also shifted stance to a more supportive policy position supporting domestic European stocks. The optimism over global trade was particularly strong in Europe given its large export trade with China and Asia. Economically-sensitive areas of the market such as industrials and information technology outperformed and European Smallcaps posted solid gains of +12.9% as risk appetite returned.  Italian equities saw the biggest gains as recessionary fears abated and Italian government bond yields fell as ECB pushed out interest rate hikes.

"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." --Robert G. Allen