Euro Area Business Activities Expanded But Interest Rate Worries Overshadowed Stocks

Bridgette Randall
21 Feb, 2023
Frankfurt

Benchmark indexes in Europe closed down after choppy sessions on the worries that high inflation and rising interest rates are beginning to negatively impact consumer spending. 

Despite the two economic reports showing improving business sentiment in Germany and economic activities in the Euro Area, market indexes sold off. 

 

German Economic Confidence Index Rose 5th Month  

Germany's economic sentiment improved for the fifth month in a row in February  to 281. from 16.9 in January, the Manheim-based think tank ZEW said in a report today. 

The Inflation expectations in the Euro Area remained almost constant at a level of minus 83.4 points.

 

Euro Area Business Activities Grows at Fastest Pace In Nine Months 

The Euro Area business activities rose at the fastest pace in nine months in February after service sector activities improved and the manufacturing sector returned to expansion, S&P Global noted in its purchasing managers' survey Tuesday.

The preliminary composite output index increased more-than-expected to 52.3 in February from 50.3 in the previous month. 

The services Purchasing Managers' Index increased to 53.0, up from 50.8 in January. 

The manufacturing PMI unexpectedly fell to a two-month low of 48.5 from 48.8 in the previous month but the manufacturing output index increased to 50.4 from 48.9 in the previous month. 

Any reading higher than 50 indicates expansion and lower shows contraction in growth rates. 

Swiss international goods trade surplus expanded to Sfr 3.12 billion in January from Sfr 2.82 billion in December, the Federal Customs Administration reported Tuesday. 

In nominal terms, exports increased 2.2% led by a 6.1% rise in chemicals and pharmaceuticals exports followed by a 4.0% increase in shipment of precision instruments. however, jewellery exports dropped 13.1% 

Watch exports rose 8.6% to Sfr 1.9 billion, according to the Federation of the Swiss Watch Industry. 

 

U.S. China Tensions Stay Elevated

Investors were also on the backfoot after tensions continued to rise between the two superpowers of the world, U.S. and China.  

U.S. Secretary of State Antony Blinken in an interview on Sunday raised the prospects of "Chinese companies providing non-lethal support to Russia for use in Ukraine." 

On the sidelines of the Munich Security Conference, the meeting between Secretary Blinken and Chinese Director of the Office of the Central Foreign Affairs Commission Wang Yi failed to calm down the rising tensions. 

 

European Indexes and Yields 

The DAX index declined 0.5% to 15,397.62, the CAC-40 index fell 0.4% to 7,308.65 and the FTSE 100 index dropped 0.5% to 7,977.75. 

The euro edged lower to $1.06, the British pound inched up to $1.2107 and the Swiss franc edged higher to 92.74 U.S. cents.  

The yield on 10-year German Bunds increased to 2.55%, French bonds rose to 3.02%, the UK Gilts to 3.63% and Italian bonds to 4.47%. 

Brent crude oil eased $1.41 to $82.65 a barrel and the Dutch TTF natural gas spot price fell 2.6% to Є48.67 per MWh. 

 

Europe Stock Movers 

HSBC Holdings Plc declined 1.8% to 609.50 pence despite the global bank reported a rise in earnings. 

Fourth quarter revenue increased 24% to $14.9 billion and profit before-tax increased by $2.5 billion to $5.2 billion. 

Estimated credit losses in the quarter jumped to $1.4 billion from $0.5 billion largely because of the exposure to commercial real estate in mainland China and UK corporate loans. 

The company estimated net interest income in 2023 of at least $36 billion and the global bank revised higher credit impairment charges to 40 basis points from 30 basis points. 

In 2022, revenue increased 4% to $51.7 billion and pre-tax income fell by $1.4 billion to $17.5 billion. 

Profit after-tax increased $2.0 billion to $16.7 billion,  including a $2.2 billion credit linked to the recognition of a deferred tax asset.

Intercontinental Hotels Group declined 1.2% to  5,526.88 pence despite the UK-based hotel chain reporting a surge in revenue and earnings and announced a stock repurchase program. 

The company plans to repurchase $750 million of its stock in 2023 and increased its final dividend by 10% to 94.5 U.S. cents, resulting in a total dividend of 138.4 cents. 

Total revenues increased 34% to $3.8 billion and operating income rose 27% to $628 million from the previous year. 

Diluted earnings per share increased to 207.2 cents from 145.4 cents in the previous year. 

 Credit Suisse AG declined 4.2% to Sfr 2.66 after the Swiss Financial Market Supervisory Authority, Finma, said it plans to review the recent statement from the company's chairman Axel Lehman. 

Chairman Lehman had indicated in the statement that the net asset outflows stabilized in December. 

Smith Nephew Plc increased 4.2% to 1,210.50 pence after the company reported a less-than-expected drop in annual profit. 

Fourth quarter revenue increased 1.4% to $1.37 billion from the previous year. 

Revenue in 2022 increased 0.1% to $5.2 billion and operating profit declined to $450 million from $593 million and diluted earnings per share fell to 25.5 cents from 59.8 cents a year ago.