Rate Hike Worries Kept European Indexes Lower

Bridgette Randall
02 May, 2023
Frankfurt

European markets traded lower amid growing anxieties of rate decisions from central bankers and looming worries of economic slowdown. 

Benchmark indexes declined after investors returned from a three-day weekend and reacted to another U.S. bank failure and worries how future aggressive rate hikes in the region will impact commercial real estate. 

The European Central Bank is set to increase its key lending rate on Thursday and investors are divided over the 25 basis points or 50 basis points increase.  

The U.S. Federal Reserve Bank is set to increase its policy rate by 25 basis points after a two-day meeting on Wednesday as policymakers grapple with the fallout from the failure of a fourth bank in the last two months. 

Despite the multiple rate hikes and a sharp fall in energy prices over the last year, inflation is well anchored in the economy and real rates remain negative. 

 

Eurozone Inflation Accelerated In April 

The Euro Area inflation increased to 7.0% in April from a 13-month low of 6.9% in March, Eurostat reported Tuesday. 

Core inflation, which exclude food and energy prices, slightly eased to 5.6% from record high 5.7% in March 

Energy prices rebounded to 2.5% in April from a decline of 0.9% in March and services inflation accelerated to 5.2% from 5.1% respectively. 

However, food, alcohol and tobacco inflation slowed to 13.6% in April from 15.5% in March and non-energy industrial goods inflation slowed to 6.2% from 6.6% respectively. 

On a monthly basis, consumer prices rose 0.7% in April, slower than 0.9% in March. 

 

Europe Indexes & Yields 

The DAX index decreased 0.3% to 15,881.34, the CAC-40 index declined 0.5% to 7,457.51 and the FTSE 100 index was nearly unchanged at 7,869.58. 

In the previous week, the DAX index increased 0.4%, the CAC-40 index dropped 1.8% and the FTSE 100 index declined 0.6%. 

The yield on 10-year German Bunds eased to 2.36%, French bonds to 2.95%, the UK gilts to 3.78% and Italian bonds to 4.24%.

The euro hovered near a one-year high against the dollar as the U.S. economy faced banking turmoil. 

The euro edged higher to $1.095, the British pound to $1.247 and the Swiss franc to 89.86 cents.

Brent crude fell 48 cents to $78.84 a barrel and the Dutch TTF natural gas decreased 55 cents to €38.29 per MWh.

 

Europe Stock Movers 

BP Plc declined 4.8% to 508.70 pence after the energy company reported a decline in profit driven by lower crude oil and natural gas prices. 

The company also slowed its pace of stock repurchase. 

HSBC Holdings plc increased 5.3% to 604.40 pence after the UK and China based lender tripled its quarterly profit. 

Ashtead Group plc increased 3% to 4,713.0 pence after the subsea equipment rental company announced a stock repurchase plan.  

Restaurant Group Plc jumped 17.1% to 47.40 pence after the company said business between January and April of 2023 "continued to be very encouraging." 

Comparable sales in the first quarter ending on April 2 soared 37% at concessions or stores located at airports, increased at Pubs and 2% at Wagamama. 

In the first four months to April, comparable sales increased 31% at Concessions, 4% at Wagamama and increased 6% at Pubs. However, comparable sales declined 3% at restaurants included in leisure. 

Ferrexpo Plc increased 1.8% to 110.0 pence after the company said chief executive Jim Norton will step down after nine years leading the iron ore pellet maker.