Bundesbank President Nagel's Comments Lift Euro and Bond Yields

Bridgette Randall
24 Nov, 2023
Frankfurt

Movements in the bond and currency markets and investor views on inflation and rate expectations dictated the trading sentiment in the European stock markets.

Yields on bonds in the region rose after comments from Bundesbank president Joachim Nagel suggesting that interest rates are likely to stay higher for longer in 2024.

President Nagel said that the European Central Bank should be cautious and resist attempts to trim rates earlier than needed, and he added that he was skeptical of the "hard landing" risks rooted in the recent interest rate hikes.

Nagel's comments lifted bond yields in the region and also supported the advance in the euro.

The German economy suffered a slight contraction in the third quarter from the previous quarter, the Federal Statistical Office, or Destatis, reported Friday.

GDP decreased 0.1% in the third quarter after adjusting for season and calendar factors. The statistical office confirmed today the preliminary estimate reported in October.

Real GDP decreased by 0.4% from a year ago, and the German economy almost stagnated in the first half of the year due to the weakness in business investment and consumer spending.

A separate survey showed German business confidence improved for the fourth month in a row as the companies were less pessimistic about the current business conditions and immediate future outlook.

The Ifo Business Climate Index improved to 87.3 in November from 86.9 in October, the Ifo Institute reported Friday.

Elsewhere in the region, the producer price index declined 7.8% in October, following a downwardly revised 8.5% decrease in September, the National Statistics Institute, or INE, reported Friday.

Producer prices declined for the eighth month in a row after energy prices continued to decline from a year ago and fell 23.4% in the month after dropping 25.4% in September.

 

Europe Indexes and Yields

The DAX index increased 0.1% to 16,006.53, the CAC-40 index rose 0.08% to 7,283.55, and the FTSE 100 index fell 0.2% to 7,471.34.

For the week, the DAX index increased 0.8%, the CAC-40 index rose 0.7% and the FTSE 100 index declined 0.4%. 

The yield on 10-year German bonds increased to 2.64%; French bonds traded lower to 3.20%; the UK gilts increased to 4.29%; and Italian bonds inched higher to 4.40%.

The euro rebounded to $1.090, the British pound at $1.255, and the U.S. dollar at 88.38 Swiss cents.

Brent crude increased $0.12 to $81.54 a barrel, and the Dutch TTF natural gas edged higher by €0.46 to €46.38 per MWh.

 

Europe Stock Movers

Luxury stocks in Paris were under pressure after one of the largest wealth managers in China said it was deeply insolvent because of loans to property developers.

The Zhongzhi Enterprise Group said its liabilities are between 420 billion yuan and 460 billion yuan, while its total tangible assets were estimated at 200 billion yuan, making the company insolvent.

Kering SA declined 0.8% to €402.80, Richemont dropped 1.7% to CHF 111.60, and LVMH fell 0.8% to €705.80.

Barclays PLC gained 0.7% to 141.30 pence, and a report suggested that the UK-based bank is looking to cut as many as 2,000 jobs as part of a plan to save as much as £1 billion over the next few years.

Trakm8 Holdings PLC dropped 5.2% to 14.70 pence after the telematics data technology company reported its half-year results.

Mining companies traded down after base and precious metal prices softened due to ongoing demand growth worries.

Anglo American decreased 1% to 2,207.77 pence, Glencore fell 1% to 445.0 pence, and Antofagasta dropped 0.7% to 1,414.50 pence.