European Markets Log Weekly Advance, Hungary Hikes Rates to 25%

Bridgette Randall
14 Oct, 2022
Frankfurt

European indexes trimmed morning gains following the market weakness in New York.

The elevated U.S. inflation report on Thursday sparked a rally in New York and Europe but stocks turned lower after the U.S. consumer spending was flat in September. 

Retail sales in the month were unchanged from the previous month, below the expectations of at least 0.2% rise, as retail sales for motor vehicles and parts, building materials and electronics and gasoline stores fell. 

Groceries stores sales were up, only supported by a rise in prices. 

The retail sales data are not adjusted for inflation, indicating that consumer spending declined across most categories of goods. 

The FTSE index increased 0.6% to 6,893.77, the DAX index jumped 0.7% to 12,437.81 and CAC-40 index advanced 0.90% to 5,931.93.

For the week, the FTSE 100 index decreased 1.9%, the DAX gained 1.3% and the CAC-40 index added 1.0%. 

 

UK Pound Weakens On Government U Turn and Minister Change 

UK Prime Minister Liz Truss fired finance minister Kwasi Kwarteng and reversed corporate tax cuts announced in the mini-budget last month.

Truss doubled down on her growth policies but said corporate tax cut will remain at 29% and reversed the earlier proposal to lower it to 19%.

The U-turn on the unfunded tax reduction proposal is expected to calm volatile Gilt market but questions remain how the government will fund its energy subsidies to households and other measures that are expected to cost the treasury 45 billion pounds. 

Truss announced the appointment of Jeremy Hunt replacing finance minister Kwasi Kwarteng only after five weeks in office. 

The Bank of England is set to end its long-term bond purchase program today, an emergency measure in support of the orderly functioning of the bond market and provide a rare rebalancing opportunity to pension fund managers.

The euro fell 0.5% to 97.24 U.S. cents and the British pound dropped 1% to $1.118.

The yield on 10-year UK bonds increased to 4.21%, German bunds rose to 2.308%, French bonds to 2.908% and Italian bonds to 4.74%.

 

Big Rate Hike in Hungary 

The Hungarian Forint advanced more than 2% and traded near 429 against the dollar after the National Bank of Hungary lifted its overnight collateral lending rate by 950 basis points to 25% in an emergency meeting on Friday.

The central bank lifted rates by a large amount in support of the falling forint and said that the bank will provide foreign currency for energy imports from its reserves.

Hungary, like many countries in Europe, is battling sky-high energy price driven inflation. Consumer price inflation in September surged above 20.0% for the first time since 1996.

The NBH has lifted rates at every policy meeting since June to combat high inflation above its target range between 2% and 4%. 

 

Stock Movers 

TomTom NV dropped 11.7% to