European Markets In Holding Pattern, Core German Inflation Stayed Above 5%

Bridgette Randall
13 Jun, 2023
Frankfurt

European markets traded in a tight range after German inflation eased and China unexpectedly lowered interest rates. 

Benchmark indexes traded sideways after German inflation declined in May but core inflation stayed above 5% for the sixth month in a row, highlighting widespread price pressures in the economy. 

Moreover, China unexpectedly lowered its short term lending rate to revive economic growth. 

The People's Bank of China lowered its seven day reverse repo rate by 10 basis points to 1.9% from 2.0%. 

The unusual move to lower short term rate before lowering the long term rate, highlights the sense of urgency felt by the policymakers in shoring the economy. 

The central bank is likely to lower its benchmark loan prime lending rate used for mortgage and consumer lending by the same amount next Tuesday. 

 

German Inflation Eased, Core Inflation Stayed Above 5% 

German inflation eased to 6.1% from a year ago in May, the Federal Statistics Office said Tuesday. 

Inflation slowed from 7.2% in April and price increase was the weakest since March 2022 when prices rose 5.9%. 

Inflation when measured on the EU-harmonized basis decreased to 6.3% from 7.6% in April. 

Energy price inflation slowed to 2.6% in May from 6.8% in April but food price inflation remained elevated at 14.9% despite easing from 17.2% in April.  

Food prices remained the main driver of inflation among all product groups. Excluding energy prices, inflation rose 6.5% and excluding food and energy, inflation was 5.4%. 

Core inflation, which excludes food and energy, has been above 5% since December 2022 and has accelerated every month since then reaching high of 5.8% in March and April before trending lower in May. 

On a monthly basis, consumer price inflation declined 0.1% in May, reversing 0.4% increase in April. 

 

Europe Indexes & Yields 

The DAX index increased 0.2% to 16,126,  the CAC-40 index increased 0.03% to 7,252.63 and the FTSE 100 index traded down 0.1% to 7,560.76. 

The yield on 10-year German Bunds inched higher to 2.37%, French bonds traded higher to 2.91%, the UK gilts edged up to 4.40% and Italian bonds decreased to 4.05%.

The euro edged lower to $1.079, the British pound to $1.256 and the Swiss franc to 90.62 cents.

Brent crude increased $1.46 to $73.32 a barrel and the Dutch TTF natural gas decreased €1.86 to €29.15 per MWh.

 

Europe Stock Movers

Luxury stocks in Paris advanced after China lowered its short term lending rate to shore up weak economic recovery. 

LVMH increased 0.2% to €836.50 and Hermes International SCA edged up 0.1% to €1,975.60. 

Mining and resource companies traded higher following a rebound in base metal and crude oil prices. 

Antofagasta, Anglo American and Glencore jumped between 2% and 4%. 

Centrica Plc fell 0.8% to  117.05 pence after the company posted strong results in the first five months of 2023 and reiterated its annual outlook near the top end of the market expectations. 

Durr Group increased 4% after the plant engineering company said it has agreed to acquire BBS Automation Group.