Higher-for-Longer Rate Worries Hobble Europe Market Indexes

Bridgette Randall
19 Sep, 2023
Frankfurt

European markets hugged the flatline and investors stayed on the sideline ahead of rate decisions from several central banks. 

Market indexes in Germany and France edged higher but lacked direction after hawkish comments from the ECB officials reminded investors that the European Central Bank is ready to raise rates to cool inflation further even if that puts the economy into a recession. 

In London trading, the benchmark index edged higher on the hopes that the Bank of England is nearing its rate hike campaign after the rate decision this week. 

Inflation in the UK has been cooling over the last six months and hovering near 7%, but still significantly higher than 2% target. 

Investors are divided about the future direction of interest rates and there is a widespread belief that central banks are more likely to keep higher rates for longer after the rebound in crude oil prices. 

Brent crude oil prices jumped above $95 a barrel  for the first time since November and WTI crude in New York approached $93, the highest in a year. 

 

Europe Indexes & Yields

The DAX index increased 0.01% to 15,727.98, the CAC-40 index advanced 0.4% to 7,299.54 and the FTSE 100 index inched up 0.2% to 7,670.19.

The yield on 10-year German bonds increased to 2.70%, French bonds traded higher to 3.24%, the UK gilts edged up to 4.34% and Italian bonds rose to 4.49%.

The euro edged lower to a three-month low to $1.069, the British pound to $1.238 and the U.S. dollar fetched 89.65 Swiss cents.

Brent crude increased $0.42 to $95.25 a barrel and the Dutch TTF natural gas increased €0.99 to €35.47 per MWh.

 

Europe Stock Movers

Banks in Germany, France, UK and Italy traded higher for the second day in a row on the expectations of higher interest rates. 

Deutsche Bank, Commerzbank, BNP Paribas, Standard Chartered Bank, HSBC and Barclays advanced between 0.5% and 1.4%. 

Societe Generale SA declined for the second day in a row and extended two-day losses to 13% after the new chief executive lowered the bank's target returns over the next three years. 

MTU Aero Engines AG declined 1.9% to €164.65 and extended 2023 losses to 20% after the heavy-duty diesel engine maker issued a sales and earnings warning because of its expanded geared turbofan inspection program.

On September 13, the company estimated adjusted revenue between €6.1 billion and €6.3 billion and earnings before interest and taxes of €800 million.  

Lonza Group jumped 2.5% to CHF 434.90 a day after plunging as much as 15% on the worries about the company's medium term earnings outlook after the company said its chief executive Pierre-Alain Ruffieux will resign at the end of the month by mutual agreement.