Macro Monday 27 - Headwinds in Europe but Spain thriving
Macro Monday 27
Headwinds for Europe but Spain demonstrating relative strength
As it is New Years Eve I wanted to do an early release for tomorrow.
This week we are taking a look at another major market Index in Europe and we will also look at one smaller market within this geographical location, Spain, due to its strong chart set up and promising economic data released in December 2023.
EURO STOXX 50 Index - SE5E
The EURO STOXX 50 index is known as Eurozone’s leading blue-chip index and is designed to represent the 50 largest and most liquid companies in the eurozone.
It was designed by STOXX, an index provider owned by Deutsche Börse Group (which operates one of the world's largest stock exchanges by market capitalization – the Frankfurt Stock Exchange). STOXX have an array of interesting index’s that we might review over coming weeks.
The Euro STOXX index is composed of 50 stocks from 11 countries in the Eurozone. These are the top fifty largest and most liquid stocks. The index futures and options on the EURO STOXX 50, traded on Eurex, are among the most liquid products in Europe and the world.
The Top Three Holdings (representing 20% of overall EURO STOXX 50 index):
1. ASML Holding NV
ASML: Microelectronics solutions provider that offers semiconductor manufacturing equipment.
2. LVMH Moët Hennessy Louis Vuitton
LVMHF: World Leader in luxury brands such as Tiffany & Co, Christian Dior, Marc Jacobs, TAG Heuer, and Bulgari.
3. TotalEnergies SE
TTE: This is a global multi-energy company that produces and markets energies: oil and biofuels, natural gas and green gases, renewables and electricity. The company has 100,000 employees and is active in 130 countries.
Interestingly the EURO STOXX 50 Index typically represents approximately 60% weighting of the STOXX Europe 600 Index, which is derived from the STOXX Europe Total Market Index
TMI which is a subset of the STOXX Global 1800 Index. Talk about a game of Russian dolls. We will look at these other charts at another time, for now we are focused on the arrow head of the commercial European markets, the Top 50 companies in the EURO STOXX 50.
The EURO STOXX 50 Index can provide a great overview on how the largest and most liquid companies in Europe are performing in aggregate, thus giving us insight into the European commercial markets direction and the European economy. So lets take a look at the chart.
The Chart
Whilst the chart is in a general uptrend since 2009 with successive higher lows, we appear to have made a long term pennant breakout however there are a number of concerns that jump out at me.
▫️ We are approaching the July 2007 market highs and if surpassed we will then have another overhead resistance from the March 2000 All Time Market highs. These are significant resistance levels.
▫️ We could be forming a rising pennant at present so even if we breach the July 2007 highs, we have the intermittent pennant ceiling to also contend with.
Whilst these are genuine concerns, at present we are trending upwards with the 21 month SMA sloping upwards.
What to watch for?
Bear Perspective:
▫️ A breach of the 21 month moving average followed by,
▫️ A breach of the rising wedge lower boundary. NOT GOOD
Bull Perspective:
▫️ We break above the July 2007 Top and make support on it eventually finding additional support from the 21 monthly moving average as time moves on.
Would I trade this chart? No! However, it is an exceptionally interesting chart that offers valuable perspective on the major components within the European commercial markets. It provides us with an interesting perspective on the European Economy and can help us understand the broader opportunity or risks within the market.
IBEX 35 Index -
IBC
We are now going to have a look at the top 35 stocks in the Spanish stock market as this market has proven to be an outlier in 2023.
The IBEX 35 Index is made up of the 35 most liquid stocks traded on the Spanish stock market. Between 2000 and 2007, this index outperformed many of its Western peers, driven by relatively strong domestic economic growth which particularly helped construction and real estate stocks. In these bull markets Spain proved to have more volatility to the upside, however that obviously comes with the potential opposite downside volatility also. In any event, we can take advantage of one of Europe’s fast paced markets and consider individual stocks within it.
Spain as an outlier
I have focused in on Spain as the chart looked more promising than the markets in other European countries, thereafter I found some economic data and narratives that support this potentially strong chart set up.
▫️ Spain is the 4th largest economy of the EU - save for that of the United Kingdom - and the 14th largest in the world.
▫️ Spain is the 13th largest recipient of foreign investments in the world. More than 14,600 foreign firms have set up their business in Spain and this appears to be a continuing trend.
▫️ As recently as the 18th December it was announced that Spanish exports exceeded €320 billion from January to October 2023, an all-time high, according to government statistics.
▫️ Industries leading this boom were the automobile, capital goods and food, beverage, and tobacco sectors.
▫️ The Spanish state also confirmed that the nation has a current account surplus of 3% of GDP, the best figure recorded since 2018.
▫️ Geographically, 61.6% of total Spanish exports were sent to the European Union in October 2023, while exports to non-EU countries accounted for 38.4% of the total, demonstrating Spain’s global reach is versatile and not restricted to Europe.
Finally a quote from the Spain's Ministry of Economy, Trade and Business "The Spanish economy ……in the complex international context, has maintained its constant weight in international trade in goods and increased its share of the European market in recent years,".
IBEX 35 Index Top 3 Holdings:
1. Iberdola
IBE (14%) – A clean energy utility company with 40,000 employees. It constructs, operates and manages power generation plants, transmission and distribution facilities and other assets. The company produces electricity using conventional and renewable energy source
2. Inditex
ITX (14%) – One of the worlds largest distribution groups for the likes of ZARA, PULL&BEAR, MASSIMO DUTTI and BERSHKA. These brands are more aligned with mid-range affordability for the middle class.
3. Santander
SAN (11%) – The 28th largest bank I the world with 200,000 employees, 166 million customers and 1.7 Trillion in total assets (all global figures).
The top three holdings making up almost 40% of the IBEX 35 weighting are actually a nice blend of Energy, Staples and Finance. This adds to my preference to actually invest in the IBEX 35 Index as it appears to be a nicely diversified index from a review of the major holdings.
The Chart
A long term pennant has made a defined breakout of the range and found support with a bounce off the 21 month moving average.
Historically you can see the relevance of the 21 month moving average, once lost after the 2000 and 2007 top it was a clear indication to exit the market. Conversely, once price is established above the 21 month moving average you can see that you typically have good odds of upward momentum.
The advantage of watching an index like this, outside of a liquid trade, is that it gives us an indication that the Spanish market has relative strength at present and companies within the index, and potentially outside it, may offer a greater probability of returns than other markets in the Eurozone. I guess being a smaller well diversified and more nimble market in the sunny Mediterranean has its benefits.
I highly recommend you review last weeks Macro Monday which looked at how positive four large Global Index’s are looking at present. These were the Vanguard Total World Stock Index ETF -
VT, iShares Global Energy ETF - 
IXC, Global X FinTech ETF - 
FINX and the Global X Blockchain ETF - BKCH
If you enjoy my coverage of these indices or would like me to cover some others, please let me know in the comments,
Happy New Year Folks, sláinte 🥂
PUKA
Headwinds for Europe but Spain demonstrating relative strength
As it is New Years Eve I wanted to do an early release for tomorrow.
This week we are taking a look at another major market Index in Europe and we will also look at one smaller market within this geographical location, Spain, due to its strong chart set up and promising economic data released in December 2023.
EURO STOXX 50 Index - SE5E
The EURO STOXX 50 index is known as Eurozone’s leading blue-chip index and is designed to represent the 50 largest and most liquid companies in the eurozone.
It was designed by STOXX, an index provider owned by Deutsche Börse Group (which operates one of the world's largest stock exchanges by market capitalization – the Frankfurt Stock Exchange). STOXX have an array of interesting index’s that we might review over coming weeks.
The Euro STOXX index is composed of 50 stocks from 11 countries in the Eurozone. These are the top fifty largest and most liquid stocks. The index futures and options on the EURO STOXX 50, traded on Eurex, are among the most liquid products in Europe and the world.
The Top Three Holdings (representing 20% of overall EURO STOXX 50 index):
1. ASML Holding NV
ASML: Microelectronics solutions provider that offers semiconductor manufacturing equipment.2. LVMH Moët Hennessy Louis Vuitton
LVMHF: World Leader in luxury brands such as Tiffany & Co, Christian Dior, Marc Jacobs, TAG Heuer, and Bulgari.3. TotalEnergies SE
TTE: This is a global multi-energy company that produces and markets energies: oil and biofuels, natural gas and green gases, renewables and electricity. The company has 100,000 employees and is active in 130 countries.Interestingly the EURO STOXX 50 Index typically represents approximately 60% weighting of the STOXX Europe 600 Index, which is derived from the STOXX Europe Total Market Index
TMI which is a subset of the STOXX Global 1800 Index. Talk about a game of Russian dolls. We will look at these other charts at another time, for now we are focused on the arrow head of the commercial European markets, the Top 50 companies in the EURO STOXX 50.The EURO STOXX 50 Index can provide a great overview on how the largest and most liquid companies in Europe are performing in aggregate, thus giving us insight into the European commercial markets direction and the European economy. So lets take a look at the chart.
The Chart
Whilst the chart is in a general uptrend since 2009 with successive higher lows, we appear to have made a long term pennant breakout however there are a number of concerns that jump out at me.
▫️ We are approaching the July 2007 market highs and if surpassed we will then have another overhead resistance from the March 2000 All Time Market highs. These are significant resistance levels.
▫️ We could be forming a rising pennant at present so even if we breach the July 2007 highs, we have the intermittent pennant ceiling to also contend with.
Whilst these are genuine concerns, at present we are trending upwards with the 21 month SMA sloping upwards.
What to watch for?
Bear Perspective:
▫️ A breach of the 21 month moving average followed by,
▫️ A breach of the rising wedge lower boundary. NOT GOOD
Bull Perspective:
▫️ We break above the July 2007 Top and make support on it eventually finding additional support from the 21 monthly moving average as time moves on.
Would I trade this chart? No! However, it is an exceptionally interesting chart that offers valuable perspective on the major components within the European commercial markets. It provides us with an interesting perspective on the European Economy and can help us understand the broader opportunity or risks within the market.
IBEX 35 Index -
IBCWe are now going to have a look at the top 35 stocks in the Spanish stock market as this market has proven to be an outlier in 2023.
The IBEX 35 Index is made up of the 35 most liquid stocks traded on the Spanish stock market. Between 2000 and 2007, this index outperformed many of its Western peers, driven by relatively strong domestic economic growth which particularly helped construction and real estate stocks. In these bull markets Spain proved to have more volatility to the upside, however that obviously comes with the potential opposite downside volatility also. In any event, we can take advantage of one of Europe’s fast paced markets and consider individual stocks within it.
Spain as an outlier
I have focused in on Spain as the chart looked more promising than the markets in other European countries, thereafter I found some economic data and narratives that support this potentially strong chart set up.
▫️ Spain is the 4th largest economy of the EU - save for that of the United Kingdom - and the 14th largest in the world.
▫️ Spain is the 13th largest recipient of foreign investments in the world. More than 14,600 foreign firms have set up their business in Spain and this appears to be a continuing trend.
▫️ As recently as the 18th December it was announced that Spanish exports exceeded €320 billion from January to October 2023, an all-time high, according to government statistics.
▫️ Industries leading this boom were the automobile, capital goods and food, beverage, and tobacco sectors.
▫️ The Spanish state also confirmed that the nation has a current account surplus of 3% of GDP, the best figure recorded since 2018.
▫️ Geographically, 61.6% of total Spanish exports were sent to the European Union in October 2023, while exports to non-EU countries accounted for 38.4% of the total, demonstrating Spain’s global reach is versatile and not restricted to Europe.
Finally a quote from the Spain's Ministry of Economy, Trade and Business "The Spanish economy ……in the complex international context, has maintained its constant weight in international trade in goods and increased its share of the European market in recent years,".
IBEX 35 Index Top 3 Holdings:
1. Iberdola
IBE (14%) – A clean energy utility company with 40,000 employees. It constructs, operates and manages power generation plants, transmission and distribution facilities and other assets. The company produces electricity using conventional and renewable energy source2. Inditex
ITX (14%) – One of the worlds largest distribution groups for the likes of ZARA, PULL&BEAR, MASSIMO DUTTI and BERSHKA. These brands are more aligned with mid-range affordability for the middle class.3. Santander
SAN (11%) – The 28th largest bank I the world with 200,000 employees, 166 million customers and 1.7 Trillion in total assets (all global figures).The top three holdings making up almost 40% of the IBEX 35 weighting are actually a nice blend of Energy, Staples and Finance. This adds to my preference to actually invest in the IBEX 35 Index as it appears to be a nicely diversified index from a review of the major holdings.
The Chart
A long term pennant has made a defined breakout of the range and found support with a bounce off the 21 month moving average.
Historically you can see the relevance of the 21 month moving average, once lost after the 2000 and 2007 top it was a clear indication to exit the market. Conversely, once price is established above the 21 month moving average you can see that you typically have good odds of upward momentum.
The advantage of watching an index like this, outside of a liquid trade, is that it gives us an indication that the Spanish market has relative strength at present and companies within the index, and potentially outside it, may offer a greater probability of returns than other markets in the Eurozone. I guess being a smaller well diversified and more nimble market in the sunny Mediterranean has its benefits.
I highly recommend you review last weeks Macro Monday which looked at how positive four large Global Index’s are looking at present. These were the Vanguard Total World Stock Index ETF -
VT, iShares Global Energy ETF - IXC, Global X FinTech ETF - FINX and the Global X Blockchain ETF - BKCHIf you enjoy my coverage of these indices or would like me to cover some others, please let me know in the comments,
Happy New Year Folks, sláinte 🥂
PUKA
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