Thursday saw major European markets end the trading day lower, owing to uncertainty surrounding interest rates and a mix of regional and U.S. economic indicators. This news was observed along with the latest quarterly earnings updates.
The Bank of England (BoE) has signaled the possibility of interest rate cuts later this year after keeping the rate consistent for four consecutive meetings and reducing its inflation forecast. However, the U.S Federal Reserve, which decided not to change rates on Wednesday, indicated it is unlikely there will be a rate cut in March.
Economic data revealed that British factory activity took a downturn in January, while the manufacturing downturn in the Eurozone slowed. Furthermore, Eurozone inflation weakened during the same month.
The pan-European Stoxx 600 ended down by 0.37%, with the UK's FTSE 100 closing lower by 0.11%. Meanwhile, Germany's DAX fell 0.26%, France's CAC 40 lost 0.89%, and Switzerland’s SMI declined 1.05%. Despite these numbers, markets in Austria, Belgium, Finland, Ireland, Portugal, Spain, Denmark, Greece, Netherlands, Poland, Russia, Sweden, and Turkey all closed higher. Nonetheless, Iceland and Norway finished the day flat.
The Monetary Policy Committee of the BoE, under the leadership of Governor Andrew Bailey, voted 6-3 to maintain the bank rate at a 15-year high of 5.25%. Moreover, the BoE omitted language in its latest policy statement that pointed towards further tightening.
Inflation was projected to make a short-term drop to the 2% target in Q2 before rising again in Q3 and Q4. Over the next two years, price growth is expected to reach 2.3% and then drop slightly to 1.9% in the third year. Additionally, the country’s GDP growth is forecasted to rise just 0.1% in the first quarter of 2024, maintaining a similar pace in subsequent quarters.
Sweden's central bank, on the other hand, kept its critical interest rate unvarying for the second session in a row. It hinted towards a possible rate cut in the first half of this year.
In the UK, companies such as Ocado Group, 3i, Associated British Foods, Fresenillo, Smurfit Kappa Group, BT, Natwest Group, and Melrose Industries saw their share prices drop from 2% to more than 5%. Other companies like Land Securities, Next, Aviva, Marks & Spencer, and Barclays Group lost nearly 2%, while Diploma and Croda International saw an uptick of about 3% in their shares. Royal Dutch Shell climbed almost 2.5% following annual profit estimations surpassing forecasts.
In Germany, Adidas' stocks were down more than 2% after the company's operating profit guidance fell short of consensus estimates. Other German companies like Covestro, Zalando, Vonovia, Bayer, Merck, Brenntag, Volkswagen, RWE, Infineon, Allianz, MTU Aero Engines, Commerzbank, and HeidelbergCement saw their shares lose 1 to 2.3% of their value. On the flip side, Deutsche Bank's stocks climbed approximately 2.7% after outlining plans for reducing 3,500 jobs and raising revenue and payout targets.
In France, Dassault Systemes and BNP Paribas experienced significant drops, with declines of more than 10% and nearly 9% respectively—BNP Paribas reported lower pre-tax income for Q4 compared to a year ago. Other French companies, including Sanofi, Societe Generale, Teleperformance, WorldLine, Eurofins Scientific, and Credit Agricole also saw a drop, ranging from 3 to 4.5%. However, Schneider Electric, Stellantis, Hermes International, TotalEnergies, Legrand, L'Oreal, and Alstom managed gains ranging from 0.6 to 1.3%.
S&P Global survey results revealed a further deterioration in British factory activity at the start of the year due to the Red Sea crisis affecting supply chains. This resulted in a PMI of 47.0 for January, slightly up from 46.2 the previous month. Additionally, Eurozone inflation slowed slightly in January following an acceleration in December, with consumer prices increasing 2.8% year-on-year, somewhat slower than the 2.9% increase in December. The Eurozone unemployment rate remained at a record low of 6.4%.
