European Markets Steady, Euro Extends 4-day Gains

Bridgette Randall
25 Nov, 2022
Frankfurt

Benchmark indexes in Europe closed mixed a day after the release of the latest minutes of the European Central Bank meeting struck a hawkish tone.   

 

ECB Minutes Show Hawkish Tone, Actions Lag Rates Considerably

With inflation near a 4-decade high and showing no signs of abating, wholesale prices in the euro zone hovering above 40% and consumer price inflation close to 10%, more policymakers supported larger rate hikes. 

Policy committee also noted the weakening economic backdrop but said labor markets are strong enough to withstand rapidly slowing economic activities. 

"Members widely agreed that the outlook for euro area economic activity had deteriorated since the September monetary policy meeting. It was noted that all components of demand, including consumption, investment and exports, showed signs of weakening." the statement noted. 

The euro extended gains for the fourth day after the release of the minutes of meeting and comments from the ECB officials. 

"The incoming data so far suggest that the room for slowing down the pace of rate adjustments remains limited," said Isabel Schnabel on Friday. 

After the last meeting of the ECB's Governing Council, rates were revised higher by 75 basis points to 2.0%, the highest since 2009 and markets are anticipating to go higher at its next meeting on November 30th by at least 50 basis points. 

Markets also reacted to rising lockdown conditions covering regions generating about 20% of economic activities in China. 

 

German Economic Growth Revised Higher, Confidence Index Marginally improves

Germany revised its third quarter economic growth estimate higher, a report from the Destatis showed Friday. 

In the third quarter, the German economy expanded at a faster pace of 0.4%, higher than 0.3% estimated on October 28. 

The economy expanded at a faster pace despite the rising inflation, supply bottlenecks and slowing global demand.  

In addition, the forward looking consumer confidence index reported by GfK is expected to show an improvement. 

The December index rose to -40.2 from -41.9 in November, despite the marginal improvement the index is deep in the negative territory. 

 

China Lowers CRR for Banks 

The People's Bank of China lowered its cash reserve ratio by 25 basis points to a weighted average ratio to 7.8%, freeing up capital of $70 billion for more commercial lending.  

 

EU Diplomats  Delay Russian Oil Cap Decision 

European diplomats also delayed by a week its controversial decision to impose a price cap on Russia oil between $65 and $70 a barrel. 

The cap sets Russia's crude price at a much higher level than the production cost and the limit is not expected to have a significant impact on Russia's ability in selling its energy products. 

 

Weekly Advance In Stock Indexes 

The DAX index increased 1.82 points to 14,541.38, the CAC-40 index increased 5.16 to 6,712.48 and the FTSE 100 index added 0.3% to 7,486.67. 

For the week, the DAX index increased 0.7%, the CAC-40 index added 1.1% and the FTSE 100 index advanced 1.3%. 

Brent crude oil declined 1.6% to $83.98 a barrel and Dutch TTF natural prices for the next month delivery rose 1.06% to 125.10 euros a MWh. 

The yield on 10-year German government bonds inched up to 1.96%, French bonds to 2.42%, the UK Gilts to 3.11% and Italian bonds to 3.84%. 

The euro extended gains for the fourth day in a row to close at $1.04 and the British pound increased to $1.20. 

 

Europe Stock Movers

Devro Plc soared 60% to 307 pence after the Scotland-based sausage casing maker agreed to be acquired by Germany-based Saria for 540 million pounds. 

About two-thirds of 2,200 company staff are based in the eurozone.  

SSE PLC increased 1% to 1,734.0 pence after the electric utility company agreed to sell about 25% stake in its power grid to Ontario Teachers' Pension Plan Board. 

 LSL Property Services plc dropped 10.6% to  234.30 pence after the residential-property services company said 2022 results are likely to fall short of previous expectations.