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What’s happening: European stocks closed higher on Friday, following the release of inflation data.
What happened: Equity markets in Europe ended the quarter with small gains amid concerns around further monetary tightening.
However, for the first half of the year, the European markets recorded sharp gains, with the stock index for one of the major regions surging to its strongest level since 2008.
Why it matters: Although data showed Eurozone’s inflation easing for a third month in a row in June, traders believe it is unlikely to stop the European Central Bank from announcing a ninth straight rate hike in July.
The ECB has increased its key interest rate during eighth straight meetings, each by 25 basis points to 3.5%, taking borrowing rates to their highest level since 2001.
Eurozone’s consumer price inflation fell to 5.5% in June, from 6.1% in the prior month and came in better than market estimates of 5.6%. Although the latest reading marked the lowest inflation since January 2022, it remained significantly above the ECB’s target level of 2.0%.
The core rate rose to 5.4%, fuelling speculations of the central bank continuing to increase rates at its upcoming meeting. ECB President Christine Lagarde had last week said that inflation in the region is still too high and is set to remain so for a long time.
Investors also digested weak economic data on China’s factory activity, which increased prospects of more policy stimulus in the economy.
European stock markets closed Thursday’s session just 0.1% higher, but extended gains on Friday.
The STOXX Europe 600 Index gained 1.16% to close at 461.93 on Friday, adding 0.9% by the end of the second quarter. The index surged around 8.7% in the first six months of the year. European banks were among the top performers, rising around 6.6% during the second quarter. Mining stocks fell 9.2% amid concerns over top metals importer, China.
Italy’s benchmark FTSE MIB jumped to its highest level since September 2008 on the last trading session of the month. The index also outperforming several of its regional peers during the quarter.
London’s FTSE 100 gained 0.80% to close at 7,531.53 on Friday, rising around 1% for the week. France’s CAC 40 index climbed about 1.19% to settle at over a one-month high of 7,400.06 on Friday.
Germany’s DAX 40 climbed 1.26% to settle at 16,147.90, gaining around 3.4% on the quarter.
What to watch: Investors await the release of manufacturing data from the Eurozone today. The HCOB Eurozone manufacturing PMI is expected to decline by 1.2 points from the prior month to a reading of 43.6 in June.
Markets will also watch producer price inflation data due to be released on Wednesday.
Context: The US dollar moved lower on Friday as investors digested consumer spending data.
Details: The Commerce Department said consumer spending grew by 0.1% in May, down from a growth of 0.6% in the previous month.
Personal consumption expenditures rose 0.1% in May, following a 0.4% increase in April. The index rose 3.8% on an annual basis, slowing from the 4.3% growth recorded a month ago. The core rate, which is the Federal Reserve’s preferred inflation gauge, rose 4.6%, versus market estimates of 4.7%.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, moved lower on Friday after recording gains for two straight days, with data showing a cooling off in consumer spending, raising concerns around the Fed’s monetary policy.
The US index had gained around 0.8% over the previous two sessions on comments from Fed Chairman Jerome Powell signalling two more rate hikes this year.
The US dollar index fell around 0.4% to 102.92 on Friday. However, the index recorded gains for the quarter.
The EUR/USD forex pair added around 0.5%, while the GBP/USD rose around 0.7% on Friday. The British pound was one of the top performing major currencies during the second quarter.
What are expectations: Traders await the release of economic data on S&P Global manufacturing PMI, ISM manufacturing PMI and construction spending from the US today. The S&P Global manufacturing PMI is expected to decline to 46.3 in June, from 48.4 in May, while the ISM Manufacturing PMI is projected to improve to 48 in June, from 46.9 in May.
Analysts expect construction spending to rise by 0.6% in May, down from 1.2% growth in the previous month.
Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.84%, 1.23% and 1.60%, respectively.
Russia launched a drone attack on Ukraine’s capital, Kyiv. The news sent the safe-haven US dollar index higher this morning.
China’s Caixin general manufacturing PMI declined to 50.5 in June, from 50.9 in the previous month. The reading coming in above market expectations of 50.2 lent support to the CNY/USD forex pair.
Australia’s job advertisements fell by 2.5% in June, following a flat reading in the prior month, which sent the AUD/USD pair lower in forex trading this morning.
Singapore’s private home prices fell by 0.4% in the second quarter, compared to a 3.3% rise in the previous quarter, which exerted pressure on the SGD/USD forex pair.
Japan’s manufacturing PMI fell to 49.8 in June, from a reading of 50.6 in May. This sent the JPY/USD pair lower in forex trading this morning.
Russia’s manufacturing PMI, Australia’s commodity prices and CoreLogic home value index, France’s government budget value, Turkey’s manufacturing PMI, total vehicle sales and Central Bank of Turkey’s MPC meeting summary, Spain’s manufacturing PMI and total vehicle sales, Italy’s manufacturing PMI and new passenger car registrations, France’s manufacturing PMI, Germany’s manufacturing PMI and passenger car registrations, UK’s manufacturing PMI, South Africa’s manufacturing PMI and total vehicle sales, Mexico’s foreign exchange reserves, manufacturing PMI and business confidence indicator, Brazil’s manufacturing PMI, balance of trade and Central Bank of Brazil’s focus market readout, Singapore’s manufacturing PMI, as well as Saudi Arabia’s bank lending growth and money supply M3.
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