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Europe stocks end flat after multi-week highs

 

Tuesday, September 05, 2023

Today’s headlines

What’s happening: European markets settled almost flat on Monday, after recording gains earlier in the session.

What happened: The STOXX Europe 600 Index surged to a four-week high in early trading on Monday.

However, European stocks failed to hold onto the gains, as optimism around China’s property stimulus measures faded.

Why it matters: Markets in Europe closed the final week of August on a strong note, erasing some losses in the month, after the latest economic releases raised hopes that the major central banks around the world were almost done with their rate hikes.

US data released on Friday showed an increase in the unemployment rate, which fuelled speculations of the Federal Reserve keeping interest rates unchanged at its upcoming policy meeting. Equity markets in the US remained closed on Monday for the Labor Day holiday.

Last week, China had announced new measures in a bid to boost to its capital markets and ramp up investor confidence, which included reducing the stamp duty on stock trading by 50%.

Data released on Monday showed trade surplus in Germany narrowing to €15.9 billion in July, from €18.7 billion in the previous month. The figure also came below market expectations of €18 billion. Exports from Europe’s largest economy fell by 0.9% to €130.4 billion in July, while imports grew 1.4% to €114.5 billion.

The pan-European STOXX Europe 600 Index closed almost flat at 457.96 points on Monday, after hitting close to four-week highs earlier in the day. The region’s tech sector added around 0.5% with shares of ASML gaining about 0.8% on Monday.

Mining stock rose by 0.6% after adding around 2% earlier in the session, after China launched stimulus measures for its property sector. Shares of China-related industrials gained 0.1%, with automakers adding 0.3% during the session. Higher European bond yields also limited the overall gains on Monday.

Shares of Novo Nordisk climbed to a record intraday high on Monday after the company announced the launch of its weight-loss drug in Britain. Superdry’s stock fell to a record low, following the resumption of trading after a three-day suspension. The company suspended trading on August 30, after pushing back the reporting of its results. The company published results on September 1, which showed an adjusted pre-tax loss of £21.7 million versus a year-ago profit of £21.6 million.

London’s FTSE 100 fell 0.16% to close at 7,452.76 on Monday, cutting gains from the previous week. Germany’s DAX 40 slipped 0.1% to 15,824.85, while France’s CAC 40 lost 0.24% to reach 7,279.51.

What to watch: Investors will watch data on Germany’s inflation and gross domestic product, scheduled for release this week, which is expected to impact the ECB’s policy decision on September 14.

Data on Eurozone services PMI, composite PMI and producer prices will be released on Tuesday. The HCOB Eurozone services PMI is expected to decline to 48.3 in August, from 50.9 in July, while the composite PMI is projected to worsen to 47.0 in August, from 48.6 a month ago. Analysts expect producer prices to ease by 0.8% in July, following a 0.4% decline in June.

The markets today

The British pound will be in focus today ahead of a basket of economic reports

Context: The GBP/USD forex pair started the new week with gains, as traders awaited the Bank of England’s policy decision.

Details: Traders expect the Bank of England to raise its benchmark interest rate at least once more this year. The BoE is expected to hike rates by 25 basis points at its meeting on September 21. Markets also expect another rate increase in November.

However, the US Federal Reserve is widely expected to keep interest rate hikes on hold at its September meeting, which exerted pressure on the US dollar.

Data released last week showed the S&P Global/CIPS UK manufacturing PMI rising to 43.0 in August, from the preliminary reading of 42.5. However, the figure was below July’s 45.3. The Nationwide House Price Index in the UK fell by 5.3% year-over-year in August, recording the largest decline since July 2009.

The GBP/USD pair gained around 0.3% to 1.2628 on Monday. Although the forex pair is still trading higher by around 4.3% for the year but is down sharply from the year-to-date surge of around 8.6% recorded two months ago.

What to watch: Traders await the release of economic reports on UK’s new passenger vehicle registrations, services PMI and composite PMI today. New passenger vehicle registrations in the UK, which climbed by 28.3% year-over-year in July, are expected to grow by 21.0% year-over-year in August.

The S&P Global/CIPS UK services PMI is expected to decline to 48.7 in August, from 51.5 in the prior month, while the composite PMI is projected to fall to 47.9 in August, from 50.8 a month ago.

Other Markets: US trading indices closed mostly higher on Friday, with the Dow Jones index and S&P 500 up by 0.33% and 0.18%, respectively, and the Nasdaq 100, down by 0.07%.

The news shaping the markets

Russia’s President Putin told Turkish President Tayyip Erdogan that he is open to discuss Ukraine’s grain deal, which sent the safe-haven US dollar index slightly lower this morning.


The Philippines said its annual inflation rate unexpectedly increased to 5.3% in August, from July’s 16-month low of 4.7%, which exerted pressure on the PHP/USD forex pair.


China’s Caixin general services PMI fell to 51.8 in August, from 54.1 in the previous month. The figure also missed market estimates of 53.6 and sent the CNY/USD pair lower in forex trading this morning.


Australia’s current surplus shrank to A$7.7 billion in the second quarter, from A$12.5 billion in the first quarter. This being the smallest current account surplus since the third quarter of 2022 exerted pressure on the AUD/USD forex pair.


Hong Kong’s S&P Global SAR PMI rose to 49.8 in August, from 49.4 in the prior month. However, private sector activity fell for the second straight month and sent the HKD/USD pair lower in forex trading this morning.

What else to watch today

Russia’s services PMI and composite PMI, South Africa’s S&P Global PMI and GDP growth rate, Spain’s services PMI and composite PMI, Italy’s services PMI and composite PMI, France’s new passenger car registrations, services PMI and composite PMI, Germany’s new passenger car registrations, services PMI and composite PMI, Brazil’s industrial Production, services PMI and composite PMI, Mexico’s consumer confidence, as well as US factory orders, IBD/TIPP economic optimism index, Logistics Manager’s Index and total vehicle sales.


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