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On Friday, key European stock indices declined dramatically. Market participants analyzed the alarming data about the record acceleration of inflation in the EU countries. The negative dynamics on the US exchanges became an additional downward factor for the European stock market.
At the time of writing, the STOXX Europe 600 index of Europe's leading companies fell by 1.2% to 409.8 points.
Meanwhile, the French CAC 40 sank by 1.47%, the German DAX decreased by 1.71%, and the British FTSE 100 lost 0.06%.
The shares of carmaker Volkswagen AG dropped by 2%, the stocks of Mercedes-Benz Group AG fell by 2.2% and BMW AG lost 1.4%.
The market capitalization of European logistics companies Deutsche Post AG and Royal Mail Plc crashed by 7.3% and 10.3% respectively. The main reason the decline in quotes fell was that the US rival of these companies, FedEx, published weak preliminary data reports.
Shares of German energy company Uniper SE dropped by 13% due to the news that its management continues to discuss with the German government a possibility of increasing the state's stake in the company to the major share, which potentially opens the way to its full nationalization in the future.
Friday morning saw fresh statistics on consumer prices in the euro region. Thus, the annual inflation rate in the European Union rose to 9.1% in August from July's 8.9%, thereby breaking a historical record.
Meanwhile, auto sales in the eurozone rose 4.4% year-over-year in August. The figure broke a 13-month losing streak.
According to the European Automobile Manufacturers Association (ACEA), last month the number of registered cars in the countries of the European Union amounted to 650,305 thousand against 622,821 thousand in August 2021.
According to the report of the National Statistics Office of Great Britain (ONS), last month retail sales in the country declined by 1.6% for the month and 5.4% for the year, which was the maximum drop for the whole year. At the same time the market had forecast a decline of only 0.5% for the month and 4.2% for the year.
The weak UK data was further evidence that the local economy is sliding into recession, as the cost of living crisis is permanently reducing the spending of local households.
The Bank of England will hold its next meeting at the end of next week. Analysts believe the British Central Bank will increase the interest rate by 75 basis points. Next Thursday, the regulator will have to adjust its next steps in monetary policy, taking into account the measures of the new government of Liz Truss on limiting energy prices.
Recall that during the August meeting, representatives of the Bank of England predicted that inflation in the country will peak at 13.3% by the end of 2022, after which the UK will plunge into recession and will not emerge from it until early 2024.
Earlier, British financial conglomerate Barclays predicted a recession in Europe in the first half of 2023. In addition, analysts at the bank suggested that the economy of the Euro-region will decrease by more than 1% during the calendar year.
On Friday the participants of the European stock market returned to the discussion of the prospects of monetary policy tightening by the leading central banks of the world.
On Thursday, representatives of the World Bank said that recession risks in 2023 are increasing against the background of a simultaneous rise in central bank rates and the energy crisis in Europe.
Earlier, the International Monetary Fund said a slowdown in the global economy was imminent. At the same time, Indermit Gill, chief economist at the World Bank, stressed that he was concerned about global stagflation (a period of low growth and high inflation).
Recall that last Thursday at its September meeting the European Central Bank raised the prime rate on loans to 1.25% per annum, the rate on deposits - to 0.75% and the rate on margin loans - to 1.5%. At the same time the rate of discount rate increase immediately by 0.75 percentage points for the first time in history.
In addition, members of the Central Bank noted that the regulator intends to continue raising the rate in the upcoming meetings. Thus, the ECB chairman Christine Lagarde said that the further pace of interest rate increases will depend on the incoming statistical data.
An important downward factor for key indicators of European stock exchanges on Friday was also the weak results of the last trading session on the US stock market. Thus, the Dow Jones Industrial Average index declined 0.56% on Thursday, falling to a one-month low. Meanwhile, the S&P 500 shed 1.13% and the NASDAQ Composite dropped 1.43%.
On Thursday, European stock market indicators closed in the red zone, ending in a minus for the third consecutive session. Market participants were walking away from risky assets amid concerns about the prospects of the US Federal Reserve's monetary policy tightening amid slowing economic growth.
As a result, the composite indicator of Europe's leading companies STOXX Europe 600 fell by 0.65% to 414.78 points. In this case, the maximum decline among the components of STOXX Europe 600 showed securities of the Swiss online pharmacy Zur Rose Group AG (-10%) and the German supplier of warehouse equipment Kion Group (-6.7%).
Meanwhile, the French CAC 40 decreased by 1.04%, the German DAX lost 0.55% and only the British FTSE 100 grew by 0.07%.
The value of securities of Finnish telecommunication equipment manufacturer Nokia dropped 1.2% and that of Ericsson, a Swedish telecommunication equipment manufacturer, dropped 2.9%. The day before, analysts at Swiss financial conglomerate Credit Suisse upgraded recommendations for Nokia shares to "above market" from "neutral" and lowered them for Ericsson to "below market" from "above market.
Quotes of the British-Dutch oil and gas company Shell fell by 1.1%. Earlier, the media reported that the chief executive officer of the oil giant - Ben van Beurden - will leave his post at the end of 2022. At the same time, from January 1, 2023, the company will be headed by Wael Savan, who currently serves as director of complex gas development.
The market capitalization of the French energy company Electricite de France SA decreased by 0.6%. On the eve of the company's management announced that against the backdrop of reduced electricity generation at nuclear power plants, its profits for 2022 will be significantly lower than previously expected.
The value of Hungarian airline Wizz Air stock dropped by 5.6% on news about the purchase of 75 A321neo planes from the Dutch Airbus. At the same time Airbus share price fell by 0.6%.
Fashion retailer H&M's stock price dropped 0.5%. Earlier the company reported lower-than-forecasted quarterly sales.
Market capitalization of Swiss pharmaceutical company Novartis declined by 0.4%. The day before representatives of the pharmaceutical giant said that the company became the subject of an investigation by the Swiss Antitrust Commission on the use of patents.
The British online retailer THG Holdings PLC plummeted 18.4% The day before the company said that its sales this year would be below forecasts amid falling consumer appetite.
The key reason for the spectacular fall of the French index the day before was the weak statistical data on consumer prices in France.
Thus, in August the annual inflation rate in the country declined only to 5.9% from July's 6.1%. At the same time, the market forecasted a more significant slowdown in consumer price growth.
Meanwhile, in the past month, consumer confidence in the UK went into negative territory for the first time since the coronavirus pandemic in mid-2020.
On Thursday, European exchanges continued to discuss data on annual inflation in the United States, which fell only to 8.3% in August from July's 8.5%. Analysts anticipated earlier that the annual consumer price index in the country would fall to 8.1% by the end of the last month.
The final data caused noticeable pessimism in world markets, because the level of inflation in August will be carefully evaluated by the Federal Reserve System at the September meeting next week. Analysts are confident that the regulator will not give up another rate hike of 75 basis points amid a slight decline in the consumer price index. Thus, last week the head of the US Federal Reserve Jerome Powell said the central bank was ready to "act decisively" to fight the record level of consumer prices in the country.
As of today, about 90% of the market believes that the US Federal Reserve will raise its benchmark interest rate by 75 basis points. At the same time, the likelihood that the rate will only be raised by 50 basis points next week has all but disappeared.
Relevance up to 19:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results.
