European Markets Drop 1%, BoE Hiked Rates, German Trade Surplus Widened

Bridgette Randall
03 Aug, 2023
Frankfurt

Market indexes retained negative bias for the third day in a row after investors reviewed economic data in the region and the Bank of England's rate decision. 

Market averages in Frankfurt, Paris and London declined and tech sector stocks led decliners after investors focused on the latest earnings results. 

Infineon, Lufthansa, Societe Generale, Rolls Royce, AXA, Adecco and BMW were in focus after the release of earnings. 

 

Bank of England Lifted Rates by 25 Basis Points to 5.25%

The Bank of England lifted its key lending rates for the fourteenth time in a row by 25 basis points to 5.25%. 

Interest rates in the U.K. are at the highest levels since 2008 and the central bank is expected to continue its rate hike campaign as inflation remains significantly above the target rate of 2%. 

The Bank of England revised its inflation forecast to 5% by the end of 2023 and estimated inflation is likely to reach its 2% target by the second quarter of 2025. 

 

German Trade Balance Expanded In June 

German trade surplus expanded to €18.7 billion in June from an upwardly revised €14.6 billion in May, the Federal Statistics Office or DeStatis reported Wednesday. 

Seasonally adjusted imports fell 3.4% from the previous month to €112.6 billion while exports edged 0.1% higher to €131.3 billion. 

Exports to EU countries advanced 1.3%, and to the Euro Area increased 1.8% and imports from EU countries fell 3.1% and from the Euro Area declined 4.1%.

From a year ago, exports declined 1.9% and imports plunged 11.6%. 

 

Wholesale Prices Dropped for 2nd Month 

Producer prices in the Euro Area declined 3.4% in June following an upwardly revised fall of 1.6% in May, Eurostat reported Wednesday. 

The ongoing decline in energy prices dragged down the measure of wholesale inflation for the second month in a row and the index fell to the lowest level since June 2020. 

On a monthly basis, the index declined 0.4% in June and fell for the sixth consecutive month in a row. 

In the month, energy prices fell 16.5% compared to a decline of 13.5% in May,  intermediate goods prices fell 2.7% compared to 1.5%, but capital goods prices rose at a slower pace of5.2% from 5.6%, durable consumer goods  prices slowed to 5.9% from 6.7% and non-durable consumer goods prices eased to 8.9% from 9.6% a year ago. 

 

Europe Indexes & Yields

The DAX index decreased 0.8% to 15,894.94, the CAC-40 index fell 0.8% to 7,251.72 and the FTSE 100 index dropped 0.7% to 7,508.68.  

The yield on 10-year German bonds increased to 2.53%, 8rench bonds traded higher to 3.10%, the UK gilts edged up to 4.42% and Italian bonds increased to 4.25%.

The euro edged lower to $1.091, the British pound to $1.266 and the U.S. dollar fetched 87.63 Swiss cents.

Brent crude increased $0.40 to $82.80 a barrel and the Dutch TTF natural gas increased €1.0 to €29.74 per MWh.

 

Europe Stock Movers

BMW declined 1.7% to €103.44 after the German luxury vehicle maker warned of simmering supply chain issues and higher inflation for the remainder of the year. 

Infineon Technologies AG dropped 7.8% to €35.09 after the company reported a decline of 10% in its adjusted quarter earnings. 

Adidas AG increased 2.2% after the German sportswear maker revised higher its 2023 sales outlook. 

AXA SA declined 0.6% to €27.23 after the French insurance company reported first-half net income declined to €3.83 billion compared to €3.85 billion a year ago. 

Rolls-Royce Holdings Plc increased 3% to 189.55 pence after the aviation and defense company reported higher first-half net profit after margins improved in its civil aviation business. 

Societe Generale SA increased 2.9% to €24.69 after the company returned to profitability in the second quarter and resumed its stock repurchase plan of €440 million.  

Volatile mining companies traded lower following the weak sentiment in the commodities markets. 

Glencore, Anglo American and Antofagasta declined between 1% and 3%.