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20.12.2022 11:42 PM
European markets lower after rising briefly

On Tuesday, European markets closed lower, and only the British stock index was in the green zone. Companies in the technological, industrial, and real estate sectors showed the biggest losses.

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The pan-European Stoxx 600 fell by 0.5% to 423.67 points.

French CAC 40 decreased by 0.35%, German DAX lost 0.42% and British FTSE 100 increased by 0.13%. The key reason for the FTSE's growth was the spectacular rise of the oil and mining sectors.

Leaders of growth and decline

The share price of European companies producing luxury goods and dependent on the Chinese market fell amid fears over the increased number of COVID-19 cases in the country. Thus, the shares of Louis Vuitton fell by 0.6% and Kering collapsed by 3.8%.

French telecoms group Orange plummeted 1% on news that its deputy chief executive and chief financial officer is leaving the company.

The share price of the Swedish manufacturer of electrical appliances Electrolux AB fell by 1.2%. The company said late Monday that the divestment of its manufacturing facility in Memphis has been postponed since the buyer requested to move closing of the transaction to the first half-year 2023.

French energy company Engie SA has dropped 5.3%. The energy group warned that it expects its 2022 and 2023 earnings to suffer a hit from the European Union's decision to impose a cap on revenue from power generation.

German real estate company Aroundtown S.A. plummeted 10%.

Norwegian hydrogen producer NEL ASA lost 7.7%.

Market sentiment

On Tuesday, European investors were actively discussing the Bank of Japan's surprise move, which at the end of the December meeting kept the rate at negative level at -0.1%. According to the BOJ, 10-year JGB can now move 50 basis points either side of its 0% target. This is wider than the previous 25 basis point band. By the way, most experts expected that the BOJ will keep the band at the same level.

Traders took such a move as a signal of tighter monetary policy.

On Tuesday, European investors also analyzed the latest data on the countries of the region. Thus, the yield on German 10-year government bonds soared to the highest in more than a month. According to data published by the German Federal Statistical Office (Destatis), the country's producer prices (PPI) rose 28.2% year on year in November. The increase was recorded for the second month in a row, with experts forecasting on average a 30.6% rise in PPI in November.

Meanwhile, according to the European Commission, consumer confidence in the European Union rose by 1.7 points in December compared with November.

On Tuesday, European investors paid attention to the negative trends on U.S. and Asian stock exchanges. On the previous day, the S&P 500 index shed 0.90%, the NASDAQ Composite fell 1.49% and the Dow Jones Industrial Average lost 0.49%.

At the end of Tuesday's trading the main indicators of the Asia-Pacific region also closed in the red zone.

Trading results the day before

On Monday, the leading stock exchange indicators in Western Europe reported an increase. The key reason for positive market sentiment was the new data on the German economy.

The Stoxx Europe 600 gained 0.27% and rose to 425.87 points.

French CAC 40 gained 0.32%, German DAX gained 0.36% and British FTSE 100 gained 0.4%. In the previous trading week, the British index decreased by 1.9%, the French one lost 3.4% and the German one decreased by 3.3%. The main reason for the persistent pessimism on the European markets was investors' fears about the prospects for the global economy.

The share price of the German motor vehicle manufacturer Volkswagen AG soared by 3.8%. Shareholders approved a special dividend payment of 9.6 billion euros from the initial public offering of Porsche AG securities.

German industrial group Thyssenkrupp AG dropped 7.8%.

The share price of the Finnish energy company Fortum Oyj jumped by 5.8%.

French oil and gas giant TotalEnergies SE increased by 3.3%.

The share price of British oil and gas company BP Plc increased by 3.1%.

German telecommunications company Freenet gained 5.1% after analysts at Deutsche Bank upgraded its rating from Neutral to Buy.

The share price of German food delivery service Delivery Hero soared 5.6%.

French IT company Atos SE went up 5%.

The share price of British cruise operator Carnival Plc fell by 4.2%.

On Monday, European investors were analyzing new data on the countries of the region. The ifo Business Climate Index rose to 88.6 points in December, up from 86.4 points (seasonally adjusted) in November. Estimates were only up to 87.4 points.

December's final result showed that sentiment in the German economy has brightened considerably. It is the third consecutive increase. The value of the index was the highest since August of this year.

The IFO Expectations Index, which indicates firms' projections for the next six months, rose to 83.2 in December from the previous month's 80.0. Meanwhile, the Current Economic Assessment improved to 94.4 points in the reported month as against November's 93.1.

On Friday, European traders continued to analyze the results of meetings of the world central banks. Thus, the European Central Bank raised the main interest rate by 50 basis points to 2.5%. In addition, representatives of the ECB said they believe further rate hikes are necessary in order to achieve the inflation target of 2%.

The ECB expects inflation to fall from an average of 8.4% in 2022 to 6.3% in 2023. Inflation is then expected to fall to an average of 3.4% in 2024. At the beginning of autumn, analysts at the ECB estimated these figures at 8.1%, 5.5% and 2.3%, respectively.

According to the new forecast, annual average real GDP growth is expected to rise by 3.4% in 2022 against the previously assumed 3.1%.

Recall that during the ECB's October meeting, the central bank raised all three key interest rates by 75 basis points. At the same time, the indicator of the base interest rate on loans was increased to 2%, deposit rates up to 1.5%, and rates on margin loans up to 2.25%.

The Bank of England also increased its base rate by 50 basis points, to 3.5% from 3%. The Monetary Policy Committee announced it had raised interest rates for the ninth meeting in a row, thereby hitting their highest level for 14 years. In addition, representatives of the central bank said it intends to pursue a tactic of further rate hikes to combat record levels of inflation and recession in the economy.

The Bank's experts predict that in the fourth quarter of this year, the UK gross domestic product will fall by 0.1% after falling by 0.5% in the previous quarter.

As part of its November meeting, the BoE raised the rate by 75 basis points, the highest hike since 1989.

Last Wednesday night, the Fed raised its interest rate by 50 basis points to 4.25%-4.5%. At the same time, the rate reached its highest level since 2007. In a comment on the results of the December meeting, Fed Chairman Jerome Powell said that the US central bank will stay on course to tighten monetary policy until inflation returns to the 2% target level.

Last week's important event was also the inflation data in the United States for November. According to the report of the U.S. Department of Labor, the consumer price index (CPI) went up 7.1% in November versus a year ago, down from 7.7% in October. Thus, inflation slowed to its lowest level since December 2021. At the same time, experts had forecasted an increase of 7.3%.

Last Friday, Eurostat published its final estimate of annual inflation in the 19 countries of the euro region for the past month. The euro zone saw consumer prices slow down to 10.1% in November from 10.6% in October. At the same time, experts forecasted the figure at 10%.

Irina Maksimova,
Especialista em análise na InstaForex
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