European Markets Halted 5-day Rally, Bond Yields Drifted Lower

Bridgette Randall
06 Nov, 2023
Frankfurt

European markets lacked direction in Monday's trading following a 5-day rally.

In cautious market sentiment, stocks drifted lower and bond yields continued to slide for the second week in a row after interest rate uncertainties eased following the rate hike pause in the U.S. and U.K.

Investors are struggling to recalibrate expectations in the face of a looming economic slowdown, tight labor market conditions, and rising interest rates driven by elevated inflation.

Inflation has been falling in the Euro Area, and consumer price inflation has steadily declined from a peak of 10.1% in November 2022 to 2.9% in October.

The European Central Bank has raised interest rates several times, but consumer inflation is still higher than the target rate of 2%. The recent decrease in inflation is due to lower energy prices and a higher base for the previous year.

Market indexes in Frankfurt, London, and Paris edged slightly lower, and investors reviewed updates on the UK's construction industry, German factory orders, and eurozone business activity.

 

German Factory Orders Advanced In September

German factory orders adjusted for seasonal factors, and the calendar unexpectedly rose 0.2% from the previous month in September, the Destatis reported Monday.

Factory orders fell 4.3% from a year ago.

August orders were downwardly revised to a 1.9% increase from the previous estimate of 3.9% following the revision of incorrect data in the manufacturing of electronic, optical, and computer products.

Domestic orders fell 5.9% and foreign orders were up 4.2%, after orders in the eurozone increased 6.2% and orders from the rest of the world rose 2.9%.

In other economic news, the HCOB Eurozone PMI compiled by S&P Global declined to 46.5 in October from 47.2 in September, the weakest reading since November 2020.

The purchasing managers' index highlighted different conditions in Spain and Italy.

The PMI for Spain in October was little changed at 50.0 from 50.1 in September, indicating stable conditions in the country.

The service PMI for Italy in October decreased to 47.7 from 49.9 in September, and the index contracted at the fastest pace in a year because of a decline in service output and activity.

The U.K. construction PMI rose to 45.6 in October from 45.0 in September, reflecting ongoing weakness in residential construction.

Home building declined for the eleventh month in a row, and civil construction activities declined at the sharpest pace since July 2020.

 

Europe Indexes and Yields

The DAX index decreased 0.3% to 15,149.54, the CAC-40 index fell 0.3% to 7,025.69, and the FTSE 100 index was flat at 7,417.97.

The yield on 10-year German bonds decreased to 2.70%, French bonds traded lower to 3.29%, the UK gilts edged down to 4.33%, and Italian bonds inched higher to 4.52%.

The euro rebounded to $1.075, the British pound at $1.242, and the U.S. dollar at 89.61 Swiss cents.

Brent crude increased $1.43 to $86.43 a barrel, and the Dutch TTF natural gas edged lower by €1.63 to €46.43 per MWh.

 

Europe Stock Movers

Telecom Italia SpA declined 0.3% to €0.25 after the company agreed to sell its landline business to the U.S.-based private equity group KKR LP for €19 billion.

PostNL NV dropped 11% to €1.59 after the Dutch parcel delivery company reported a quarterly loss and forecasted annual profit to fall near the low end of its previous estimate.

Ryanair Holdings plc increased 6.6% to €16.21 after the discount airline forecasted a record annual profit and indicated its plan to pay a regular dividend.

Scottish Mortgage Investment Trust PLC declined 0.5% to 684.48 pence after the company reported a decline in net asset value in the first half of the fiscal year.

Prudential plc decreased 0.8% to 892.60 pence after the insurance company reported a slower pace of growth in the third quarter from the previous quarter.

Melrose Industries PLC rose 3.5% to 507.0 pence after the company's unit, GKN Aerospace, signed a new agreement with GE Aerospace.