The leading stock indicators of Western Europe showed growth on Thursday. Market participants are returning to risky assets despite concerns about the prospects for tightening monetary policy by the US Federal Reserve in the context of a slowdown in economic growth.
Thus, when this was written, the summary index of the leading companies in Europe STOXX Europe 600 increased by 0.17% - up to 418.21 points. At the same time, securities of the German travel operator TUI (+5.6%) and the British engineering holding Rolls-Royce (+4.5%) showed the highest results among the STOXX Europe 600 components.
Meanwhile, the French CAC 40 fell 0.21%, the German DAX rose 0.25% and the UK FTSE 100 gained 0.54%.
Leaders of Growth and Decline
The value of securities of the Finnish telecommunications equipment manufacturer Nokia sank by 0.2%, and the Swedish representative of this industry – Ericsson – by 3%. The day before, analysts of the Swiss financial conglomerate Credit Suisse raised the recommendations for Nokia shares to "above the market" from "neutral" and lowered them for Ericsson to "below the market" from "above the market".
Quotes of the British-Dutch oil and gas company Shell increased by 0.5%. Earlier, the media reported that the chief executive officer of the oil giant, Ben van Beurden, will leave his post at the end of 2022. At the same time, from January 1, 2023, the company will be headed by Wael Sawan, who currently holds the position of director of the integrated gas development division.
The market capitalization of the French energy company Electricite de France SA fell by 0.3%. The day before, the company's management announced that amid a decrease in electricity generation at the NPP, its profit for 2022 will be significantly lower than previously expected.
The value of the securities of the Hungarian airline Wizz Air fell by 5.6% on the news of the purchase of 75 A321neo aircraft from the Dutch Airbus. At the same time, the share price of Airbus rose by 0.1%.
The quotes of the fashion retailer H&M decreased by 0.5%. Earlier, the company reported lower-than-forecast quarterly sales.
The market capitalization of the Swiss pharmaceutical company Novartis decreased by 0.4%. The day before, representatives of the pharmaceutical giant said that the company had become the subject of an investigation by the Antimonopoly Commission of Switzerland regarding the use of patents.
The value of securities of the British online retailer THG Holdings PLC collapsed by 20%. The day before, the company announced that its sales volume this year will be lower than expected amid a decline in consumer appetite.
Market Sentiment
The key reason for the fall of the French index in Thursday's trading were weak statistics on consumer prices in France.
Thus, in August, annual inflation in the country fell to only 5.9% from 6.1% in July. At the same time, the market predicted a more significant slowdown in consumer price growth.
Meanwhile, in the past month, consumer confidence in the UK for the first time since the Covid restrictions in mid-2020 moved into negative territory.
Recall that last Thursday, as part of the September meeting, the European Central Bank raised the base rate on loans to 1.25% per annum, the rate on deposits - up to 0.75%, and the rate on margin loans - up to 1.5%. At the same time, the increase in the discount rate immediately by 0.75 percentage points took place for the first time in history.
In addition, members of the ECB noted that the central bank intends to continue raising the rate in the upcoming meetings. Thus, ECB President Christine Lagarde said that further rates of increase in interest rates will depend on the incoming statistical data.
In this regard, the British financial conglomerate Barclays predicted a recession in Europe in the first half of 2023. In addition, the bank's analysts assumed that the economy of the euro region will decline by more than 1% during the calendar year.
Trading Results the Day Before
European stock indicators closed in the red zone on Wednesday. The main catalyst for the fall in stock indicators was disappointing inflation data in the United States, as well as alarming statistics from the euro region.
As a result, the aggregate indicator of the leading companies in Europe, the STOXX Europe 600, fell by 0.86% to 417.51 points.
Meanwhile, the French CAC 40 declined by 0.37%, the German DAX lost 1.22%, and the British FTSE 100 sank by 1.47%.
The securities of the French airline group Air France-KLM fell by 3%, despite the fact that earlier the company's management promised to increase salaries to employees and provide them with a one-time bonus of 1,000 euros.
The shares of the German energy company Uniper SE fell by 18% on the news that its management continues to discuss with the German government the possibility of increasing the state's share in the company to majority.
The value of securities of the German airline Deutsche Lufthansa AG plunged by 3.7%. Representatives of the Stabilization Fund of Germany reported that they completely sold the shares of the airline, making a profit of 760 million euros.
The quotes of the German manufacturer of loading and unloading equipment Kion Group AG fell by 30%. The company predicted a net loss based on the results of the third quarter amid disruptions in logistics chains and high energy prices.
The market capitalization of the Spanish owner of large chains of Industria de Diseno Textil SA (Inditex) increased by 3.8% after the announcement of strong corporate reporting for January-June. Thus, in the first half of fiscal year 2022, the owner of the popular Zara brand increased net profit by 41%, and revenue by 24.5%.
The share price of one of the largest housebuilders in the UK, Redrow, rose by 1% thanks to the recent release of its quarterly results. So, according to the report for the past period, the company significantly exceeded its pre-pandemic financial results.
The value of securities of the British home furniture retailer Dunelm Group Plc soared by 4% on the report of a healthy gross margin of 51.2%, despite record inflation figures.
European investors were focused on the latest statistical data on the eurozone. Thus, in July, the volume of industrial production in the EU countries fell by 2.4% year-on-year and by 2.3% month-on-month. At the same time, the market predicted an annual growth of 0.4% and a monthly decline of 1%.
Meanwhile, according to the National Statistical Office (ONS) of Great Britain, consumer prices in the country in August soared by 9.9% in annual terms. Compared to July, when inflation was 10.1%, the growth of the indicator slowed down slightly. At the same time, the consumer price index is still at its highest level in more than 40 years. By the way, market experts interviewed by the leading American financial information provider Bloomberg, on average predicted an increase in August inflation of only 10%.
The next meeting of the Bank of England will be held at the end of next week. Analysts suggest that the British central bank will increase the interest rate by 75 basis points. Next Thursday, the central bank will have to adjust its further steps in monetary policy, taking into account the measures of the new Liz Truss government to limit energy prices.
Recall that during the August meeting, representatives of the BoE predicted that inflation in the country will reach a peak of 13.3% by the end of 2022, after which the UK will plunge into recession and will not come out of it until early 2024.
On Wednesday, participants in European exchanges continued to discuss data on annual inflation in the United States, which fell to only 8.3% in August from July's 8.5%. At the same time, analysts had previously assumed that the annual consumer price index in the country would decrease to 8.1% according to the results of the past month.
The final data from the US Department of Labor, published on Tuesday, caused tangible pessimism in world markets, as the level of August inflation will be carefully assessed by the Fed during the September meeting next week. Analysts are confident that amid a slight decrease in the consumer price index, 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 country.
To date, approximately 90% of the market is confident that the Fed will increase the base interest rate by 75 basis points. At the same time, the likelihood that next week the rate will be raised by only 50 basis points has practically disappeared.
The weak results of the last trading session on the US stock market also became an important downward factor for the key indicators of European stock exchanges on Wednesday. So, on Tuesday, The Dow Jones Industrial Average fell by almost 4%, which was its biggest one-day decline in the last two years. At the same time, the S&P 500 plunged 4.32%, and the NASDAQ Composite - 5.16%.