European Market Sentiment Weak as Inflation Worries Weigh

Bridgette Randall
28 Nov, 2023
Frankfurt

European stock markets were under pressure ahead of the release of inflation data in the Euro Area and leading nations of the currency union.

Market participants are anticipating overall inflation in October to range between 2.5% and 4% in the currency union, Germany, France, Spain, and Italy.

Benchmark indexes in the region declined, and inflation jitters kept market sentiment down for the second day in a row.

Overall, inflation has been steadily declining for the last eight months in a row in the Euro Area, but prices are still rising faster than the European Central Bank's target rate of 2%.

The decline in inflation is primarily reflecting lower energy prices, and despite the multiple rate hikes, inflation has been stubbornly anchored in the broader economy.

Moreover, market anxieties were high ahead of the OPEC+ meeting on Thursday, and oil-producing nations are struggling to agree on production quotas.

 

German Consumer Morale Stayed Weak 

German consumer morale stayed weak amid a lack of progress on the broader economic recovery, the GfK Group reported Tuesday.

Germany's GfK Consumer Climate Index inched higher to -27.8 for December from a downwardly revised -27.3 in November.

Economic expectations were nearly unchanged despite the worries of high interest rates, elevated inflation, and economic uncertainties.

 

Sustained Improvement in French Consumer Morale

The consumer confidence in France increased to 87 in November, the statistical institute of France, INSEE, reported Tuesday.

The confidence level increased to the highest level since April 2022, a 19-month high, after consumers were more optimistic about the outlook for the standard of living and expectations for their personal financial situation; however, worries about employment rose sharply.

 

Eurozone Bank Lending Drops to New 8-year Low

Bank lending to households in the Euro Area rose by 0.6% from a year ago in October, the European Central Bank reported Tuesday.

The increase in lending to households was the smallest since June 2015, after demand for credit decelerated on the steady rise in interest rates.

Meanwhile, lending to corporations declined by 0.3%, the first decline since July 2015.

But overall lending to the private sector, including households and non-financial institutions, rose by 0.4% in October from 0.2% in September.

 

Europe Indexes and Yields

The DAX index decreased 0.1% to 15,955.74, the CAC-40 index fell 0.4% to 7,234.09, and the FTSE 100 index declined 0.4% to 7,428.85.

The yield on 10-year German bonds decreased to 2.54%; French bonds traded lower to 3.10%; the UK gilts declined to 4.21%; and Italian bonds inched lower to 4.32%.

The euro rebounded to $1.095, the British pound at $1.265, and the U.S. dollar at 88.09 Swiss cents.

Brent crude increased $1.0 to $80.98 a barrel, and the Dutch TTF natural gas declined by €0.97 to €43.02 per MWh.