European Markets Fall On Elevated Inflation Data and Cautious Undertone

Bridgette Randall
18 Jan, 2023
Frankfurt

European markets paused after advancing for days in the first two weeks of 2023 and investors turned cautious. 

The Euro Area and the U.S. inflation data and the Bank of Japan's continuation of ultra-loose monetary policy dominated the news cycle. 

Investors also took a cautious view of China's abrupt switch from zero-covid policy to rapid spread of coronavirus as the expected pick up in business and social activities lag market's expectations. 

Retail sales, industrial production, highway traffic and airline passenger bookings in January are recovering after three years of lockdowns but the pace of rebound is still slow, according to local sources in Shanghai, Shenzhen and Beijing. 

 

Euro Area Inflation Eased but Remained Elevated In December 

The Euro Area inflation eased to 9.2% in December from 10.1% in November as previously estimated, Eurostat said in a report released Wednesday. 

Core inflation, excluding food and energy, accelerated to 5.2% in December from 5.0% in November, keeping the pressure on the European Central Bank to continue with its aggressive rate hikes.  

On a monthly basis, the harmonized inflation index decreased 0.4% in December.  

Across the region, the lowest annual inflation rates were recorded in Spain with 5.5%, Luxembourg 6.2% and France 6.7%. 

The highest  annual rates were recorded in Hungary after prices soared 25.0%, Latvia 20.7% and Lithuania 20.0%. 

Compared to November, annual inflation fell in twenty-two member states,  and the rate was stable in two and rose in three.

 

Passenger Car Registration Growth Slowed 

Automakers advanced after European passenger car sales rose for the fifth month in a row, but the pace of increase slowed in December. 

New car sales in the European Union increased 12.8% in December, slower than 16.3% increase in November. 

 

European Market Indexes Hovered Near 9-month Highs 

European markets opened higher and advanced in morning trading but faced selling pressure following the weakness in New York trading. 

Benchmark indexes lost early gains and closed down in the region. 

The DAX index declined 5.27 points to 15,181.80, the CAC-40 index increased 6.2 points to 7,083.39 and the FTSE 100 index dropped 20.33 points or 0.3% to 7,830.70. 

 

Bond Yields Traded Down Despite Elevated Inflation 

The yield on 10-year German Bunds decreased to 2.16%, French bonds declined to 2.65%, UK Gilts dropped to 3.26% and Italian bonds eased to 3.69%. 

 

Weakening U.S. Inflation Drags U.S. Dollar Lower 

The euro advanced to $1.0824, the British pound rose to $1.239 and the Swiss franc edged higher to 91.11 U.S. cents. 

 

Europe Stock Movers 

Automakers were in focus after the release of December industry sales data as sales rose for the fifth month in a row. 

Volkswagen AG, Daimler AG, Porsche Automobil, Renault SA and Peugeot SA  traded between a loss of 0.3% and an increase of 1%. 

Continental AG declined 3.0% to €66.20 after the German automobile parts maker lowered its adjusted free cash flow estimate and the company blamed the shortfall on the delay in customer payments. 

Adjusted free cash flow is expected to be around €1.6 billion in the fourth quarter and around €200 million for the year compared to the estimated range between €600 million to €800 million.

Pearson Plc declined a fraction to 915.85 pence after the British-publishing company reported 2022 results ahead of expectations. 

Underlying sales for the full-year increased 5% from a year ago and adjusted operating profit rose 11% to £455 million based on the British pound to the U.S. dollar rate at $1.24.  

Richemont SA increased 0.6% to Sfr 137.90 after the Swiss luxury group reported higher sales in all regions except Asia Pacific. 

Sales increased 5% and rose 8% in constant currency despite the ongoing Covid-linked disruptions in China. 

Sales increased to €5.4 billion from  €4.98 billion a year ago after sales in Europe increased 17% to €1.3 billion and in the U.S. rose 16% to €1.3 billion. 

Asia Pacific sales declined 7% to €1.9 billion. 

Just Eat Takeaway.com NV closed up 4% to 2,215.50 pence after the company reported higher-than-expected revenues in the fiscal second-half.

Total gross orders placed on the delivery platform in the fourth quarter 2022 declined 2% to €7.1 billion from €7.3 billion a year ago and were stable at €28.2 billion in 2022. 

Adjusted operating earnings was €150 million or 1.1% of gross sales in second-half 2022 from a loss of €134 million in the first-half, driven by higher revenue per order, lower delivery costs per order and overheads & operating expenses. 

Full-year adjusted operating earnings improved to approximately €16 million in 2022 from a loss of €350 million in 2021.