The leading stock exchange indicators of Western Europe showed an increase on Tuesday. Market participants are anxiously awaiting the release of inflation data in the United States for August from the Ministry of Labor of the country.
Thus, by the time of writing, the aggregate indicator of the leading companies in Europe, the STOXX Europe 600, increased by 0.2% to 428.6 points.
Meanwhile, the French CAC 40 gained 0.26%, the German DAX also rose by 0.26%, and the British FTSE 100 increased by 0.16%. By the way, the FTSE 100 shows steady growth for the fourth consecutive session (+3.5%), the CAC 40 – the sixth (+4.2%), and the DAX – the third (+4%).
Leaders of Growth and Decline
The value of securities of the Swiss bank UBS Group AG rose by 1.5%. The day before, the bank's management announced that it would increase dividends for 2022 by 10% to $0.55 per share. In addition, UBS Group expects that the volume of securities repurchases will exceed $5 billion this year.
The quotes of the British media company Future Plc soared by 6%. The company predicted that Future Plc's adjusted operating profit for the current year would be at the upper limit of market expectations.
The share price of the British online retailer Ocado Group Plc has fallen by 13%. Earlier, the company announced that it expects revenue to fall in 2022 amid a permanent decline in consumer demand due to rising prices.
Market Sentiment
European investors were focused on the release of data from the US Department of Labor on the dynamics of the consumer price index in the country. According to preliminary forecasts of experts, the annual inflation rate for the past month decreased to 8.1% from July's 8.5%.
The final data for August will also be carefully evaluated by the US Federal Reserve during the upcoming September meeting next week. Analysts believe that, even in the event of a decrease in the inflation rate, the central bank will not refuse another rate hike by 75 basis points. So, last week, Fed Chairman Jerome Powell announced the readiness of the central bank to "act decisively" in order to combat the record level of consumer prices in the United States.
To date, approximately 90% of the market is confident that the Fed will increase the base interest rate by 75 basis points next week.
Recall that last Thursday, during the September meeting, the European Central Bank increased the base rate on loans to 1.25% per annum, the deposit rate to 0.75%, and the rate on margin loans to 1.5%. At the same time, an increase in the discount rate immediately by 0.75 percentage points took place for the first time in history.
During the meeting, the ECB also raised the forecast of an increase in consumer prices in 2022 to 8.1%, in 2023 to 5.5%, and in 2024 to 2.3%. At the same time, at the June meeting of representatives of the central bank, preliminary figures were 6.8%, 3.5% and 2.1%, respectively.
According to the new forecast of the EXB, the growth of the gross domestic product of the euro region this year will be 3.1% against the previously forecast 2.8%. At the same time, GDP forecasts for next year were worsened to 0.9% from 2.1%, and for 2024 – to 1.9% from 2.3%.
In addition, members of the central bank noted that the ECB intends to continue raising the rate during the upcoming meetings. Thus, ECB President Christine Lagarde said that the further pace of interest rate hikes will depend on incoming statistical data.
An important upward factor for the key indicators of European stock exchanges on Tuesday was the strong statistics on the UK. So, unemployment in the country fell to 3.6% in May-July – the lowest since 1974. The reason for such a spectacular drop in the indicator was the fact that a large number of people left the labor market. At the same time, the number of people with jobs increased by only 40,000 in the third quarter of 2022.
Meanwhile, according to the final data of the German Federal Statistical Office, the level of consumer prices in the country soared by a record 8.8% in August. In monthly terms, prices rose by 0.4%. Recall that in July, this indicator increased by 8.5% year-on-year and by 0.8% month-on-month.
According to the data of the Spanish statistical agency INE, in the past month, inflation in the country fell to 10.5% from July's 10.7% amid falling rates of increase in the cost of transport services. In monthly terms, prices in the country rose by 0.3% after falling by 0.6% in July. At the same time, experts predicted a greater slowdown in consumer price growth in annual terms – up to 10.3%.
Trading Results on the Eve
Last Monday, European stock indicators closed in the green zone. The main growth catalyst for stock indicators turned out to be a positive closing ahead of trading on the US stock market.
As a result, the aggregate indicator of the leading companies in Europe, the STOXX Europe 600, increased by 1.76% to 427.75 points. At the same time, the highest results among the components of the STOXX Europe 600 were shown by the securities of the British retailer Marks & Spencer Group PLC (+7.7%), the Belgian pharmaceutical research company Galapagos N.V. (+7.2%), the German energy company Uniper SE (+7.1%) and the German biopharmaceutical company MorphoSys AG (+6.6%).
Meanwhile, the French CAC 40 gained 1.95%, the German DAX rose 2.4%, and the British FTSE 100 increased by 1.66%.
The value of securities of the German airline Deutsche Lufthansa increased by 2.1%. The day before, the company entered into an agreement with the Vereinigung Cockpit trade union regarding an increase in salaries for pilots.
The quotes of the Swedish manufacturer of household appliances Electrolux AB decreased by 0.6% on the news that the company is launching a cost reduction program amid falling market demand and weak results for the past quarter.
The market capitalization of the Dutch multinational company Koninklijke Philips NV increased by 1.5%. Even Dutch media reports that the VEB shareholders association plans to sue Koninklijke Philips NV in connection with the worldwide recall of breathing apparatus of its production could not prevent the growth of quotes.
The share price of Swiss reinsurance company Swiss Re rose by 1%. The day before, the company said that geopolitical tensions in the world, as well as permanent climate change, provoked the demand for protection against risks. This state of affairs, Swiss Re management believes, will lead to an increase in insurance premiums.
An important upward factor for the key indicators of European stock exchanges on Monday was the strong results of the last two trading sessions of the week on the US stock market. So, on Thursday, the Dow Jones Industrial Average rose by 0.61%, the S&P 500 rose by 0.66%, and the NASDAQ Composite – by 0.60%. On Friday, the DJIA increased by 1.19%, the S&P 500 – by 1.53%, and the NASDAQ Composite – by 2.11%.
Monday morning it became known that the volume of industrial production in the UK unexpectedly plunged by 0.3% in July compared to when it decreased by 0.9% June. At the same time, analysts predicted an increase in industrial production in July by 0.4%.
Meanwhile, according to the National Statistical Office (ONS) of Great Britain, the country's exports in July fell by 4.2% compared to June, and imports fell by 1.6%.
According to market experts, the weak July data for Britain became another proof of the many economic difficulties that the region is facing today.
In August, representatives of the Bank of England predicted that the country would plunge into recession at the end of this year and not come out of it until early 2024.