10.01.2023 11:46 PM
European markets fall after advancing the day before

Major Western European indexes were in the red zone on Tuesday. Investors anxiously awaited new data on US inflation.

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The STOXX Europe 600 fell by 0.6% and reached 445.67 points.

The French CAC 40 lost 0.49%, the German DAX dropped 0.6% and the British FTSE 100 fell 0.29%.

Biggest gainers and losers

Spie S.A., a French company specializing in the fields of electrical, mechanical and climatic engineering equipment, plummeted 5.7%.

Shares of Softcat PLC, a British provider of IT infrastructure solutions, fell by 5.1%.

British video games developer Games Workshop Group PLC dropped by 4.8%.

Shares of British Internet food delivery company Deliveroo PLC decreased by 3.8%.

Danish energy company Oersted A/S increased by 3.6%.

German multinational manufacturer of luxury vehicles and motorcycles Bayerische Motoren Werke AG (BMW AG) gained 0.9%. The company reported that its sales of electric cars more than doubled last year.

UK retail chain Tesco Plc went up by 0.4%.

Shares of British supermarket chain J Sainsbury Plc jumped by 0.9%.

Market sentiment

European traders are locking in profits and refraining from risks on Tuesday in anticipation of the release of the US inflation report.

Analysts estimate that consumer prices increased 6.5% in the year to December, down from 7.1% in November.

New inflation data will help traders predict the U.S. Federal Reserve's future stance on monetary policy.

In addition, on Tuesday, investors analyzed the recent statements of the Fed officials. The day before, the head of the Fed Bank of San Francisco Mary Daly said that the US central bank will be forced to raise its key interest rate above 5% to fight the record level of inflation in the country.

Fed Chairman Jerome Powell set to speak on Tuesday night, and traders from around the world are watching closely.

As a reminder, the Fed raised interest rates by 0.5 percentage points in December, bringing the target range for its benchmark rate to 4.25% to 4.5%. At the same time, US interest rates set by the Fed rose to their highest since 2007. In a commentary on December's meeting, Fed Chairman Jerome Powell said the US central bank would stay on course to tighten monetary policy until inflation returned to the 2% target.

According to the latest data of the largest North American financial derivatives market CME Group, more than 70% of experts expect the key interest rate in the US to increase by 0.25 percentage point in February, up to 4.5-4.75% per year.

On Tuesday, European traders also analyzed economic data for countries in the region. The National Statistical Office of France Insee reported that French industrial production increased in November compared to October when it fell by a revised 2.5%. Industrial production in France grew as activity returned to normality after strikes at refineries caused a sharp fall in October's output.

Thus, industrial output rose 2.0% in November. At the same time, earlier experts had expected the index to grow by only 0.8%.

A new report from the British Retail Consortium has stated that, in the UK, retail sales grew by 6.5% during December 2022 compared to the previous year and also accelerated from a 4.1% rise in November.

This week, investors continued to discuss news regarding China's easing of its extremely strict quarantine restrictions. As of January 8, the Chinese government opened its borders with Hong Kong and also canceled a mandatory quarantine for travelers arriving from abroad. At the same time, a negative coronavirus test will be required to enter the country.

In addition, Beijing authorities had previously reduced its infection monitoring level, rejecting the legal basis for the introduction of enhanced quarantine measures.

In response, some countries have tightened requirements for visitors from China. For example, the US has introduced mandatory testing for those arriving by air from China, beginning on January 5.

Traders around the world have been seriously concerned about China's "zero-Covid" policy, as Chinese restrictions have had a negative impact on the economic activity and stock markets.

At the end of November, mass protests erupted in Shanghai against strict quarantine measures of local authorities. The protesters were dispersed by local police using gas canisters.

Markets became hopeful that mass protests in Chinese cities would force local authorities to ease restrictions across the country. The latest news from China was welcomed as a positive signal that the world's second-largest economy could once again grow strongly in the future.

Previous trading session

Major Western European indexes advanced on Monday amid increased risk appetite among investors, who continued to analyze positive data from Germany and other EU countries. The stock market was also supported by news from the US and China. Commodity stocks led the upside at the beginning of the week.

The STOXX Europe 600 went up by 0.88% to 448.35 points.

French CAC 40 gained 0.68%, German DAX gained 1.25% and British FTSE 100 gained 0.33%. At that, in the middle of the trades, the FTSE 100 jumped to a three-year high. Indexes advanced following reports that China has reopened its borders, sparking hopes among investors that the world's second-largest economy will quickly recover.

Shares of British video game developer Frontier Developments plummeted by 42.4% after analysts downgraded the company's financial outlook for 2023.

German pharmaceutical and chemical corporation Bayer AG increased by 2.6%.

The market capitalization of the British video games publisher Devolver Digital declined by 9.4%. The day before, the company reported lower than expected sale volumes for December. Its performance for the second half of fiscal year 2022 also fell short of market forecasts.

Share price of German construction materials company HeidelbergCement rose by 1.9%.

Vodafone Group fell by 0.02%. On Monday, the company's management announced plans to sell its Hungarian unit Vodafone Hungary for €1.7 billion to 4iG Public Ltd. and Corvinus Zrt. The deal is set to be finalized by the end of January 2023. Vodafone plans to use the funds received to reduce its debts.

Shares of pharmaceutical giant AstraZeneca Plc fell 0.4% following reports that it bought US-based CinCor Pharma Inc. for $1.3 billion.

On Monday, the sub-index of mining companies on the FTSE 100 rose by 1.4% thanks to higher crude oil prices amid increased demand in China. Subsequently, the market capitalization of British mining company Anglo American Plc jumped by 2.1%, while Chile's Antofagasta and Switzerland's Glencore gained 4.2% and 3.2%, respectively. Meanwhile, shares of British Petroleum and Shell rose by 0.4% and 1.2%, respectively.

On Monday, European traders analyzed economic statistics from various EU countries. Destatis reported that industrial production in the country surpassed forecasts. Germany's industrial production rose by 0.2% in November m/m, while analysts had expected an increase of 0.1%.

In November, German manufacturing output rose 0.5%, while intermediate goods output climbed by 1.2%. Capital goods output increased by 0.7% and consumer goods output dropped by 1.5%. Electricity generation jumped 3%, while construction fell by 2.2%.

Meanwhile, unemployment in 19 EU countries remained unchanged in November at 6.5%.

According to a recent key report from the US Labor Department, job growth and wage growth in the US slowed down in December 2022. Thus, average hourly pay in the private sector increased by 0.3% month-on-month and by 4.6% year-over-year. Analysts had projected increases of 0.4% and 5%, respectively.

Meanwhile, nonfarm payrolls rose by 200,000 in December after a 263,000 increase in November.

Irina Maksimova,
Especialista em análise na InstaForex
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