European Markets Retained Slight Upward Bias Amid Lingering Growth and Inflation Worries

Bridgette Randall
08 May, 2023
Frankfurt

European market indexes traded sideways after a week of volatile trading and rate hikes. 

Market indexes lacked direction and digested latest rate hikes of 25 basis points by the European Central Bank and the U.S. Federal Reserve. 

The Bank of England is set to announce its interest rate decision on Thursday. 

The larger-than-expected increase in U.S. jobs in April showed the labor market's resilience but investors worried how the economy and the labor market will adjust to elevated rates and slowing aggregate demand. 

Moreover, investors across the Atlantic worried how the commercial real estate sector and regional banks will deal with interest rate shocks.  

Decade-long negative nominal interest rates in the Euro Area and in the U.S. has fueled a surge in debt and investors chasing yields in riskier assets. 

With ten rate hikes in a row the U.S. and seven in the European Central Bank, has narrowed the negative rates but rates are still not positive and restrictive enough.  

To put the scope of the problem in perspective, assets of the central banks of G7 nations exploded to $23.5 trillion in 2020 from $5.7 trillion in 2008, reflecting the central banks' abusing their reserve currency status and unprecedented money printing. 

 

German Industrial Production Declined 

German industrial production adjusted for seasonal and calendar factors declined 3.4% in March from the previous month and rose 1.8% from a year ago, the Federal Statistics Office or DeStatis reported Monday. 

Industrial production in February was upwardly revised 2.1% from the previous month and rose 0.7% from a year ago in February. 

In the first quarter, production increased 2.5% from the fourth quarter of 2022.

Manufacturing of motor vehicles and parts decreased 6.5% in March after rising 6.9% in February, machinery and equipment fell 3.4% and construction equipment dropped 6.4%.  

 

Europe Indexes & Yields 

The DAX index increased 12.46 points to 15,973.48 and  the CAC-40 index added 11.46 points to 7,444.59. Markets in the U.K. were closed for a holiday. 

The yield on 10-year German Bunds inched up to 2.31%, French bonds traded slightly higher to 2.90%, the UK gilts inched higher to 3.78% and Italian bonds advanced to 4.22%.

The euro edged higher to $1.104, the British pound to $1.265 and the Swiss franc to 88.86 cents.

Brent crude rose $1.50 to $76.80 a barrel and the Dutch TTF natural gas increased €0.68 to €35.89 per MWh.

 

Europe Stock Movers 

Novo Nordisk AS increased 5.4% to DKK 1,152.40 and extended Friday's gains after the company said it may have to restrict adding new patients in order to support the supply for its existing patients for its weight loss drug Wegovy.  

PostNL LV jumped 7.5% to €1.63 after the Dutch government controlled postal company issued an upbeat quarterly report. 

Revenue in the first quarter declined 3% to €783 million from €806 million a year ago after total parcel volume fell 6.5%. 

Total comprehensive income in the first quarter declined to €4 million from €32 million a year ago. 

The company said normalized EBIT plunged 78% to 7 million from 33 million and forecasted 2023 normalized EBIT between €70 million and €100 million and free cash flow between €10 million and €40 million.