FX.co ★ European stock market declines after a dizzying rally

The key stock indicators of Western Europe showed a decline on Thursday after an active rise the day before.

Thus, by the time of writing, the aggregate indicator of the leading companies in Europe, the STOXX Europe 600, increased by 0.1% to 440.3 points. The highest results among the index components are shown by the securities of the Swedish oil and gas exploration and production company Orron Energy AB, which soared by 14.5%.

Meanwhile, the French CAC 40 declined by 0.05%, the German DAX lost 0.1%, and the British FTSE 100 fell by 0.22%.

Leaders of Growth and Decline

The value of the securities of the German energy concern RWE AG decreased by 1%, despite the fact that the company increased its adjusted net profit by 1.8 times in January-June, and also confirmed the annual forecast.

The share prices of the German telecommunications company Deutsche Telekom AG rose by 0.2%. In the second quarter of fiscal year 2022, the net profit of this communications giant decreased by 22%. At the same time, the management of Deutsche Telekom AG improved the annual forecast of adjusted profit for the second time in a year due to the good performance of the American wireless operator T-Mobile US Inc., owned by the German company.

The market capitalization of the German truck manufacturer Daimler Truck Holding AG sank by 1.4% despite the growth of net profit in April-June by one and a half times amid high demand.

The share price of the German container shipping operator Hapag-Lloyd AG fell by 2.1%, despite the fact that in the first half of the year the company increased revenue by 1.8 times amid a sharp increase in freight rates.

The securities of the German supplier of equipment for the energy industry, Siemens Energy AG, declined by 1%, despite higher-than-expected revenues for the third quarter.

What is Happening in the Market?

European investors were focused on the release of quarterly reports of leading companies in the region, as well as the data on inflation in the United States for July, published on Wednesday.

The US Department of Labor published a report on the consumer price index, according to which annual inflation in the country slowed to 8.5% by the end of July. The current slowdown was the first in the past five months of 2022.

Earlier, market analysts stated that in July, the annual inflation rate in the country will decrease only to 8.7% from June 9.1% (the highest since 1981).

Traditionally, a decrease in the inflation rate is a clear signal to the US Federal Reserve about the need for a less sharp increase in base interest rates in the future. The day before, analysts immediately lowered their forecast for the rate.

According to CME Group, the largest North American financial derivatives market, now only 60% of analysts expect this indicator to increase by 50 basis points during the September meeting. At the same time, most experts previously predicted its third consecutive increase by 75 basis points.

However, some representatives of the Fed have already hastened to declare that the US central bank does not plan to ease monetary policy in the near future.

Neil Kashkari, the head of the Federal Reserve Bank of Minneapolis, called the July inflation data "the first hint" of the beginning of a decline in this indicator, but later added that this does not negate the need to increase the base interest rate further. Kashkari recalled that the target inflation rate for the central bank is 2%.

Amid positive news from the United States, the demand for risk instantly increased and a rally began on the US and European stock markets. In addition, the dollar's exchange rate against other key world currencies immediately collapsed.

At the same time, experts are confident that such a situation in the markets will not last long and soon investors will return to concern about problems in the global economy and the tense geopolitical situation in the world.

An additional supporting factor for the stock market in Europe on Thursday was the spectacular rise in Wall Street indices following the results of trading on Wednesday. The key indicator of the US stock market Dow Jones soared by more than 500 points, or 1.6% on Wednesday.

Trading Results the Day Before

European stock exchange indicators showed growth on Wednesday due to the desire of market participants for risk after the release of data on July inflation in America.

As a result, the aggregate indicator of the leading companies in Europe, the STOXX Europe 600, increased by 0.89% to 439.88 points.

The French CAC 40 rose 0.52%, the German DAX gained 1.23%, and the British FTSE 100 rose 0.25%.

The value of securities of the Dutch bank ABN Amro Bank NV decreased by 1.8%, despite the fact that in the past quarter the company's net profit exceeded the forecasts of market analysts.

The stock prices of the Danish manufacturer of wind turbines Vestas Wind Systems soared by 8.8%. The company received a larger quarterly loss than the market expected, but the management of Vestas Wind Systems confirmed the annual forecasts.

The market capitalization of the Dutch supermarket chain Ahold Delhaize NV rose by 7.6%. In the second quarter of fiscal year 2022, the company increased its net profit by 12%.

The share price of the German energy concern E.ON SE fell by 2.3% amid a decline in net profit in the second quarter. At the same time, the company's management announced a tangible increase in revenue, and also confirmed the annual forecast.

In addition, the company reduced the value of its stake in the Nord Stream gas pipeline by about 700 million euros, explaining its decision by the permanent increase in geopolitical tensions between Ukraine and Russia

The value of securities of the British online food delivery service Deliveroo Plc jumped by 7.74%. In January-June, the company increased its pre-tax loss by 54%, but increased revenue by 12%.

The quotes of the British insurance company Aviva soared by 12.2%. In the first half of the year, the insurer increased its operating profit and increased the amount of dividends.