On Friday, key European stock indices declined dramatically. Market participants analyzed the alarming data about skyrocketing 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%.
Top gainers and losers
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 plunged by 7.3% and 10.3% respectively. The main reason for the decline in quotes was that FedEx, the US rival of these companies, published weak preliminary data reports.
Shares of German energy company Uniper SE dropped by 13% due to the news that its management continued to discuss with the German government a possibility of increasing the state's stake in the company which might result in its full nationalization in the future.
Market sentiment
On Friday, fresh statistics on consumer prices in the euro area were published. The annual inflation rate in the EU rose to 9.1% in August from 8.9% in July, hitting an all-time high.
Meanwhile, auto sales in the eurozone increased by 4.4% year-on-year in August. The reading broke a 13-month decline.
According to the European Automobile Manufacturers' Association (ACEA), last month the number of passenger cars registered in the EU countries totaled 650,305 units against 622,821 units in August 2021.
According to the report of the Office for National Statistics (ONS), in August 2022 retail sales in the UK declined by 1.6% month-on-month and 5.4% in annual terms, which was the record decline during 2022. At the same time, analysts had forecasted a drop of only 0.5% month-on-month and 4.2% in annual terms.
The weak UK data was additional proof that the local economy is sliding into recession as UK households are reducing their expenditures due to the cost of living crisis.
The Bank of England will hold its meeting at the end of next week. Analysts believe the UK's 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 Liz Truss's new government on limiting energy prices.
Notably, the Bank of England representatives predicted during the August meeting that inflation in the country would peak at 13.3% by the end of 2022. Then the UK will plunge into recession and it will not end until early 2024.
Earlier, British financial conglomerate Barclays predicted a recession in Europe in the first half of 2023. Moreover, analysts at the bank assumed that the EU economy would decline by more than 1% during the year.
On Friday, the participants of the European stock market continued discussing the prospects of monetary policy tightening by the major global central banks.
On Thursday, the World Bank representatives said that recession risks in 2023 were increasing amid a simultaneous rise in interest rates and the EU energy crisis.
Earlier, the International Monetary Fund announced an upcoming slowdown in the global economy. At the same time, Indermit Gill, chief economist at the World Bank, stressed that he was concerned about global stagflation.
Last Thursday, at its September meeting the European Central Bank raised the prime rate on loans to 1.25% per annum. Moreover, it increased the rate on deposits and the rate on margin loans to 0.75% and to 1.5% respectively. At the same time, the discount rate was raised immediately by 0.75% for the first time in history.
Moreover, the Central Bank members noted that the regulator intended to continue raising the rate in the upcoming meetings. Thus, ECB President Christine Lagarde said that the further pace of interest rate increases would depend on the incoming statistical data.
On Friday, the weak outcomes of the last trading session on the US stock market became a significant downward factor for key European stock indices. Thus, the Dow Jones Industrial Average index declined by 0.56% on Thursday, falling to a one-month low. Meanwhile, the S&P 500 sank by 1.13% and the NASDAQ Composite dropped by 1.43%.
Previous trading results
On Thursday, European stock indices closed in the red zone, declining for the third consecutive session. Market participants sold off risky assets amid concerns about the prospects of the US Federal Reserve's monetary policy tightening in the face of slowing economic growth.
Consequently, the STOXX Europe 600 index of Europe's leading companies fell by 0.65% to 414.78 points. At the same time, stocks of Swiss online pharmacy Zur Rose Group AG and German supplier of warehouse equipment Kion Group were top losers among the components of STOXX Europe 600. They plunged by 10% and 6.7% respectively
Meanwhile, the French CAC 40 dropped by 1.04%, the German DAX lost 0.55%, and only the British FTSE 100 rose by 0.07%.
The shares of Finnish telecommunication equipment manufacturer Nokia fell by 1.2% and stocks of Swedish telecommunication equipment manufacturer Ericsson dropped by 2.9%. The day before, analysts at Swiss financial conglomerate Credit Suisse raised the forecast for Nokia shares to above-market from neutral and lowered them for Ericsson to below-market from above-market.
Stocks of British-Dutch oil and gas company Shell decreased by 1.1%. Earlier, the media reported that company's chief executive officer Ben van Beurden would resign his post at the end of 2022. At the same time, Wael Savan, who is currently Shell's director of complex gas development, will become the company's CEO from January 1, 2023.
The market capitalization of French energy company Electricite de France SA declined by 0.6%. Earlier, the company's management announced that its profits for 2022 would be significantly lower than previously expected amid reduced electricity generation at the nuclear power plant.
The shares of Hungarian airline Wizz Air dropped by 5.6% after news came that the company would purchase 75 planes A321neo from the Dutch Airbus. At the same time, Airbus stocks fell by 0.6%.
The shares of fashion retailer H&M's dropped by 0.5%. Earlier, the company reported lower-than-forecasted quarterly sales.
The market capitalization of Swiss pharmaceutical company Novartis declined by 0.4%. The day before, Novartis representatives said that the company was the subject of an investigation by the Swiss competition commission into patent use.
The shares of British online retailer THG Holdings PLC plummeted by 18.4% The day before, the company said that its sales would be below forecasts in 2022 amid falling consumer appetite.
The key reason for the dramatic decline of the French index the day before was the weak data on consumer prices in France.
Thus, the annual inflation rate in the country fell only to 5.9% in August from 6.1% in July. At the same time, analysts forecasted a more significant slowdown in consumer price growth.
In August, UK consumer confidence was in negative territory for the first time since the coronavirus pandemic in mid-2020.
On Thursday, market makers continued to discuss data on annual inflation in the United States. It dropped only to 8.3% in August from 8.5% in July. Analysts anticipated earlier that the annual consumer price index in the country would fall to 8,1% by the end of August.
The final data caused pessimism in global markets as the Federal Reserve System would assess the level of inflation in August at its September meeting the following week. Analysts are confident that the regulator will again raise the rate by 75 basis points amid a slight decline in the consumer price index. Thus, last week US Federal Reserve Chair Jerome Powell said the central bank was ready to act decisively to fight the record level of consumer prices in the country.
Currently, about 90% of the market participants believe that the US Federal Reserve will raise its benchmark interest rate by 75 basis points. At the same time, it is almost unlikely that the rate will be increased by 50 basis points next week.
