European Markets Paused After Core Inflation Stayed Near Record Levels

Bridgette Randall
19 Apr, 2023
Frankfurt

European markets paused but stayed near the record territory as rate path worries resurfaced. 

The latest reading on consumer price inflation, showed the stubborn nature of inflation forces, as the headline inflation stayed above 10.0% and core inflation hovered near the record level reached six months ago. 

After the inflation data, traders forecasted another 25 basis points increase in UK's interest rates after the policy meeting on May 11. 

But investors are still divided on the next moves from the U.S. Federal Reserve. Most investors are anticipating a rate hike of 25 basis points on May 3rd, but the rate path is uncertain after. 

Markets anticipating that the Fed may pause after the rate hike in May but terminal rates may rise to as high as 5.75%.   

On the earnings front, Heineken reported larger-than-expected decline in beer sales in the first quarter but reaffirmed its annual earnings outlook. 

ASML Holding, the Netherlands-based semiconductor chip equipment maker, reported better-than-expected earnings. 

 

Euro Area Core Inflation Accelerated In March 

The Euro Area consumer price inflation eased for the fifth month in a row, Eurostat reported Wednesday. 

The annual rate of price increase in March slowed to 6.9%, the lowest level since February 2022 and significantly lower than the peak rate of 10.6% in October. 

Despite the decline in overall rate of inflation, core inflation which excludes food and energy, accelerated to record high 5.7%. 

The rise in core rate put the stock market on alert and raised the prospect of the European Central Bank continuing its aggressive rate hike policy.   

Service inflation accelerated to 5.1% from 4.8% in February and food, alcohol and tobacco inflation expanded to 15.5% from 15.0% respectively. 

Energy prices declined 0.9% in March, first month of price decline in two years.  

 

UK Consumer Inflation Stays Above 10% 

The consumer price inflation rate eased to 10.1% in March from 10.4% in February, the Office for National Statistics reported Wednesday. 

The consumer price inflation remained above 10% for the seventh month in a row and well above the 2% target set by the Bank of England. 

Inflation was driven by price increases in food and elevated cost of energy utilities and housing. 

Food and non-alcoholic beverage inflation accelerated to 19.1% from 18.0% in February and housing and utilities inflation eased slightly to 26.1% from 26.6% in the previous month. 

Core rate of inflation, which excludes food and energy, rose 6.2% in March, slightly lower than the peak rate of 6.5% in September 2022.  

 

Indexes & Yields 

The DAX index decreased 0.1% to 15,862.75, the CAC-40 index declined 4.75 points to 7,528.83 and the FTSE 100 index decreased 0.3% to 7,883.07. 

The yield on 10-year German Bunds rose to 2.52%, French bonds crossed 3.0%, the UK Gilts increased to 3.84% and Italian bonds to 4.35%.  

The euro traded at $1.095, the British pound at $1.243 and the Swiss franc at 89.83 cents. 

Brent crude oil declined $1.33 to $83.33 a barrel and the Dutch TTF natural gas hovered at Є42.70 per MWh. 

 

Europe Stock Movers 

Resource stocks were on the defensive after commodities prices eased a day after China optimism lifted prices. 

Glencore Plc fell 0.9% to 493.30 pence, Anglo American plc declined 2.2% to 2,739.0 pence and BHP Group Limited decreased 0.8% to 2,520.50 pence. 

Heineken Holding NV increased 1.7% to €87.50 after the company reported first quarter sales increased 9.2% to €6.4 billion. 

Heineken brand beer volume rose 2.3% but overall organic beer volume declined 3% to 54.8 mhl. 

ASML Holding NV decreased 2.4% to €574.70 after the advanced semiconductor equipment maker said revenue in the first quarter increased to €6.7 billion from €6.4 billion a year ago. 

Net income in the first quarter increased to €1.95 billion from €1.81 billion and diluted earnings per share rose €4.96 from €4.60 a year ago. 

Net booking in the quarter declined to €3.8 billion compared to €6.3 billion in the fourth quarter. 

ASML forecasted second quarter 2023 net sales between €6.5 billion and €7.0 billion and a gross margin between 50% and 51%.