European Markets Advanced Ahead of Rate Decisions, German Investor Morale Dropped to 11-Month Low

Bridgette Randall
17 Sep, 2024
London

European markets advanced for the second consecutive day in a row and extended weekly gains ahead of key monetary policy decisions. 

Benchmark indexes in London, Paris, and Frankfurt advanced ahead of rate decisions from the U.S. Federal Reserve Bank, the Bank of England, the Norges Bank, and the Bank of Japan. 

Investors are hoping that the Federal Reserve will deliver a widely anticipated rate cut of at least 25 basis points, but the central banks of the U.K., Norway, and Japan are likely to hold rates steady. 

Consumer price inflation in the U.S. has slowed over the last eighteen months, but that decline is largely reflecting lower energy prices. 

Prices are still rising at a faster pace than the Fed's target rate of 2% and from a higher base, stretching consumer budgets for most families. 

Moreover, the service sector inflation is still above 4%, and many small and medium-sized businesses are still looking to pass on higher operating costs to consumers, which is likely to keep inflation at an elevated pace for several more months. 

Closer to home, the ZEW Indicator of Economic Sentiment for Germany plunged to 3.6 in September from 19.2 in August, the Center for European Economic Research announced Tuesday. 

The investor morale indicator declined for the third month in a row and fell to the lowest level since October 2023. 

Investors are widely discounting the hope for an economic rebound in Germany amid rising cost of living, elevated interest rates, and weakening labor market conditions. 

 

Europe Indexes and Yields

The DAX index increased by 0.9% to 18,794.30; the CAC-40 index rose by 0.9% to 7,514.68; and the FTSE 100 index increased by 0.7% to 8,339.07. 

The yield on 10-year German bonds edged lower to 2.10%, French bonds inched lower to 2.82%, the UK gilts edged down to 3.74%, and Italian bonds decreased to 3.44%.

The euro edged up to $1.11; the British pound inched higher to $1.32; and the U.S. dollar weakened to 84.46 Swiss cents.

Brent crude decreased $0.22 to $72.52 a barrel, and the Dutch TTF natural gas rose by €0.47 to €34.78 per MWh. 

 

Europe Stock Movers

Kingfisher plc increased 7.7% to 310.90 pence after the UK-based home improvement retailer raised the lower end of its fiscal 2025 profit estimate. 

Sales in the first half declined 1.8% to £6.7 billion from £6.9 billion, pre-tax income increased 2.3% to £324 million from £317 million, and earnings per share advanced 3.9% to 12.8 pence from 12.4 pence a year ago. 

The company blamed the sales weakness to a decline in sales of large tickets and unusual weather conditions. 

The retailer also lifted its annual profit-before-tax range to between £510 million and £550 million from the previous estimate between £490 million and £550 million. 

Barry Callebaut increased 6.9% to CHF 1,557.0 after Barclays upgraded the stock to "overweight" from "underweight," citing a decline in cocoa prices and the company's focus on improving its operating costs. 

The company has closed underperforming plants in Italy, Malaysia, and Germany and expressed confidence that it is on track to achieve its $250 million cost-cutting target by the end of fiscal year 2027. 

Essentra PLC plunged 18.2% to 136.80 pence after the UK-based manufacturing company lowered its annual outlook in the current fiscal year, citing market challenges. 

The company revised its annual profit estimate to between £40 million and £42 million, citing adverse market conditions and a negative foreign exchange impact of £2 million. 

The company reversed its previous outlook of an improvement in volume in the expectations of a rebound in demand in Europe, including Turkey. 

However, sales have lagged the company's expectations in the second half in the U.S. and APAC region.