European stock markets dropped on Tuesday after regional inflation data suggested that the European Central Bank would raise interest rates sooner than expected. The regional inflation data, released by Eurostat on Tuesday, showed that consumer prices rose 1.4% year-on-year in January, up from 1.2% in December and the highest rate since October 2019.
The inflation data was above expectations and raised concerns that the European Central Bank could raise interest rates sooner than expected. Higher interest rates could dampen economic growth and stock market performance, which sent European equities lower on Tuesday.
The trade deal between the U.K. and the European Union, announced on Thursday, had been seen as a potential catalyst for a rally in European stocks, but the inflation data overshadowed any goodwill generated by the new trade pact. The FTSE 100 in the U.K., the DAX in Germany, and the CAC 40 in France all traded lower on Tuesday.
Read also: U.S. Federal Reserve may hike interest rates to nearly 6%.
Sterling clings onto gains
Sterling clung onto gains made following the announcement of a new trade deal between the European Union and the UK, with the currency hovering above $1.20. The British pound jumped 1% in the previous session, and rose to a high of $1.2069 on Tuesday. The euro similarly got a lift and was last 0.05% higher at $1.0614, after rising 0.6% on Monday.
The new trade deal, known as the Windsor Framework, removed the threat of a tit-for-tat trade war between the UK and its largest market, the EU. This helped to brighten the outlook for the post-Brexit UK economy, and signalled improved relations between London and the bloc.
The leader of Northern Ireland’s Democratic Unionist Party (DUP) said his party was working through the details, and the British parliament will now vote on the deal. Markets are now expecting the British pound to remain above $1.20 until the vote.
Overall, sterling clung onto gains made after the announcement of a new trade deal between the EU and UK, and is expected to remain above $1.20 until the British parliament votes. [1], [2], [3
References: [1] Sterling holds gains after rising on UK trade deal with EU [2] FTSE gains as UK moves closer to EU trade deal – Citywire [3] Pound Sterling Rallies as Northern Ireland Brexit Deal is Agreed
FTSE 100 opened lower on Tuesday
The FTSE 100 opened lower on Tuesday, with investor worries resurfacing about the health of the global economy. The index dropped 0.59%, joining a rout in global markets, with the stronger pound weighing on consumer companies. Royal Mail, a postal company, was down 12.4%, and U.S. retailer Target was down 4.9%. Oil and gas stocks were also declining.
The export-oriented FTSE 100 (.FTSE) was hit by investor fears over inflation and slowing global economic growth. Consumer companies were taking the biggest hit, with Unilever, Diageo, Reckitt Benckiser, and British American Tobacco dropping between 1.7% and 5.3%. Tesco was down nearly 4.1%.
European stock markets were also sharply lower, as investors grew increasingly nervous that economies were set to fall into recession. The FTSE 100 index is down 163 points or 2% in afternoon trading at 7274 points. The pan-European Stoxx 600 index is down 1.3%.
Overall, the FTSE 100 opened lower on Tuesday as worries resurfaced about the slowing global economy. Investor fears over inflation and slowing economic growth were causing a rout in the stock market, with consumer companies taking the biggest hit. European stock markets were also sharply lower due to fears of a recession. [1], [2], [3
References: [1] London’s FTSE 100 tumbles on global slowdown worries [2] FTSE 100 slide as recession fears weigh on markets [3] FTSE 100 heads lower at the close on weaker economic …
EUR/USD was trading at 1.0613
The EUR/USD pair held key support ahead of the release of the Euro area Consumer Price Index (CPI) data. The currency pair was trading at 1.0613, with the US dollar slightly weaker as investors continued to focus on the upcoming economic data releases. The EUR/USD pair was supported by speculation that the Euro area CPI data could come in better than expected.
The Euro area CPI is an important indicator of inflationary pressures. It measures the change in the price of goods and services from the perspective of the consumer. A higher than expected reading should be taken as positive/bullish for the EUR, while a lower than expected reading should be taken as negative/bearish for the EUR.
The Euro area CPI is expected to show an increase of 1.4% in the year to February, down from the 1.5% recorded in the previous month. This could be an indication that the Euro area economy is slowing down and that inflationary pressures are easing.
Overall, the EUR/USD pair held key support ahead of the release of the Euro area Consumer Price Index (CPI). Investors were watching closely to see if the data would come in better than expected. If so, this could mean that inflationary pressures are easing, which could be a bullish sign for the EUR/USD. [1], [2], [3
References: [1] Inflation in the euro area – Statistics Explained [2] Euro Area Inflation Rate – January 2023 Data [3] Eurozone Consumer Price Index (CPI) YoY – Investing.com
Commerzbank rises as Germany’s No. 2 lender returns to DAX
Shares in Commerzbank AG (ETR:CBKG) rose on Monday after the German lender re-entered the DAX index, replacing chemicals giant Linde. Commerzbank had been removed from the DAX index in 2019, but has now returned following the completion of its restructuring process and the implementation of new membership rules by the DAX-compiler Deutsche Boerse.
Commerzbank has undergone a sweeping overhaul of its operations in the past year, cutting thousands of jobs and shutting down branches in a bid to boost profits. The bank has also been investing in digital technology to help it become more competitive and efficient.
Earlier this month, Commerzbank reported its highest annual net income in over a decade and said it expects to see an improvement to that result in 2023. Meanwhile, Wirecard filed for insolvency in 2020 following revelations that it had been operating a multi-year fraud that had left a hole in its accounts worth nearly €2 billion.
Overall, shares in Commerzbank AG rose on Monday after the German lender re-entered the DAX index, replacing chemicals giant Linde. Commerzbank has undergone a sweeping overhaul of its operations in the past year and its return to the DAX index is a sign that its restructuring efforts have paid off. [1], [2], [3
References: [1] Commerzbank rises as Germany’s No. 2 lender returns to DAX … [2] Commerzbank rises as Germany’s No. 2 lender returns … – MSN [3] Commerzbank Shares Rise After Return to Germany’s DAX …
