The leading stock indicators of Western Europe showed a spectacular decline on Monday. At the same time, the UK stock market is closed due to the funeral of Queen Elizabeth II.
Market participants are moving away from risks ahead of a series of meetings of the world's key central banks this week, which are expected to lead to further tightening of monetary policy by central banks.
When this article was written the aggregate indicator of the leading companies in Europe, the STOXX Europe 600, fell by 0.5% to 406.34 points. At the same time, the best results among the components of the STOXX Europe 600 are shown by the securities of the Polish video game developer CD Projekt S.A. (+4%) and the German manufacturer of military equipment Rheinmetall AG (+3.2%). Shares of the Norwegian solar energy producer Scatec ASA (-7.6%), the Swedish energy company Orron Energy AB (-6.6%) and the Norwegian owner of the gas station network Aker BP (-5.9%) lead the list of declines here.
Meanwhile, the French CAC 40 plunged by 1.14%, and the German DAX declined by 0.54%.
The value of securities of the Volkswagen AG automotive concern increased by 1.2%. The day before, the company's management announced that it plans to raise up to 9.39 billion euros during the listing of shares of luxury car manufacturer Porsche.
Market Sentiment
In the coming week, investors are preparing for a two-day meeting of the US Federal Reserve, the results of which will be published on Wednesday. To date, approximately 90% of the market is confident that the Fed will increase the base interest rate by 75 basis points.
On Thursday, participants in the global stock markets will actively monitor the Bank of England meeting. Most analysts believe that the British central bank will raise the rate by another 75 basis points to combat the record level of inflation.
During the next meeting, the BoE will have to adjust its further steps in monetary policy, taking into account the measures of the new Liz Truss government to limit energy prices.
Recall that at the August meeting, representatives of the BoE predicted that inflation in the country will reach a peak of 13.3% by the end of 2022, after which the UK will plunge into recession and will not come out of it until early 2024.
Also earlier, the British financial conglomerate Barclays predicted a recession in Europe in the first half of 2023. In addition, the bank's analysts suggested that the economy of the euro region will decline by more than 1% during the calendar year.
Meetings on monetary policy of the central banks of Switzerland, Norway, Sweden, Japan, Turkey and China are also scheduled for the current seven-day period.
Fresh data on PMI indices in the European Union and the UK will be published on Friday.
According to the results of the last two months, the PMI for the euro region is balancing below the level of 50, which is the line between contraction and expansion. At the same time, the risk of recession in the eurozone economy has reached its highest level since July 2020.
The People's Bank of China announced that it has lowered the repo rate, and also increased cash injections into the economy. Recently, the central bank has been stimulating the growth of the world's second largest economy in every possible way, which has suffered greatly from lockdowns and restrictions caused by coronavirus infection.
Previous Trading Results
European stock indicators closed in the red zone last Friday. Market participants analyzed alarming data on a record acceleration of inflation in the eurozone countries. An additional downward factor for the European stock market was the negative dynamics on the stock exchanges of the United States.
As a result, the aggregate indicator of the leading companies in Europe, the STOXX Europe 600, fell by 1.85% to 408.24 points. Over the past week, it has lost almost 3%.
The French CAC 40 declined by 1.31%, the German DAX lost 1.66% and the British FTSE 100 plunged by 0.62%.
The value of the securities of the automaker Volkswagen AG decreased by 0.5%, Mercedes-Benz Group AG – by 0.9%, and BMW AG – by 0.4%.
The market capitalization of European logistics companies Deutsche Post AG and Royal Mail Plc collapsed by 6.6% and 8.1%, respectively. The main reason for the drop in quotes was the announcement of weak preliminary reports by the American competitor of these companies – FedEx.
The share price of the German energy company Uniper SE fell by 13% on the news that its management continues to discuss with the German government the possibility of increasing the state's share in the company to majority, which potentially opens the way to its full nationalization in the future.
Fresh statistics on consumer prices in the euro region appeared on Friday morning. Thus, in August, the annual inflation rate in the EU countries rose to 9.1% from July's 8.9%, thereby updating the historical record.
Meanwhile, car sales in the eurozone countries increased by 4.4% year-on-year in August. This indicator interrupted a 13-month series of falls.
According to the European Automobile Manufacturers Association (ACEA), last month the number of registered cars in the EU countries amounted to 650,305 against 622,821 registered in August 2021.
According to the report of the National Statistical Office of Great Britain (ONS), last month retail sales in the country decreased by 1.6% for the month and 5.4% for the year, which was the biggest decline for the whole year. At the same time, the market predicted a decline of only 0.5% for the month and 4.2% for the year.
Weak data on the UK has become another proof that the local economy is slipping into recession, as the cost-of-living crisis permanently reduces the costs of local households.
On Friday, European stock market participants returned to discussing the prospects for tightening monetary policy by the world's leading central banks.
On Thursday, representatives of the World Bank said that the risks of a recession in 2023 are increasing amid a simultaneous rate hike by central banks and the energy crisis in Europe.
Earlier, the International Monetary Fund announced the upcoming slowdown in the global economy. At the same time, the chief economist of the World Bank, Indermit Gill, stressed that he was concerned about global stagflation (a period of low growth and high inflation).
Recall that last Thursday, during the September meeting, the European Central Bank increased the base rate on loans to 1.25% per annum, the deposit rate to 0.75%, and the rate on margin loans to 1.5%. At the same time, an increase in the discount rate immediately by 0.75 percentage points took place for the first time in history.
In addition, members of the ECB noted that the central bank intends to continue raising the rate during the upcoming meetings. Thus, ECB President Christine Lagarde said that the further pace of interest rate hikes will depend on incoming statistical data.
An important downward factor for the key indicators of European stock exchanges on Friday was also the weak results of the last trading session on the US stock market. On Thursday, the Dow Jones Industrial Average index fell by 0.56%, falling to a one-month low. At the same time, the S&P 500 plunged by 1.13%, and the NASDAQ Composite by 1.43%.
