Dec 20, 2023: European stock markets advanced, led by the FTSE 100, following a notable decline in UK inflation. At the start of Wednesday’s session, Germany’s DAX index increased by 0.2%, France’s CAC 40 by 0.3%, and the UK’s FTSE 100 surged by 1.5%.
U.K. Inflation Decline: In November, U.K.’s annual consumer price inflation experienced a more significant drop than anticipated, descending to 3.9% from October’s 4.6%—marking the lowest rate since September 2021. The core annual figure, excluding volatile food and energy prices, also plunged unexpectedly to 5.1% from 5.7%.
Bank of England’s Stance: Despite the Bank of England maintaining its main interest rate during its recent meeting, it emphasized a commitment to high rates for an extended period. However, this drastic decline in inflation could bolster market expectations for a rate cut in the first half of the coming year, aimed at bolstering the sluggish economy.
German Producer Prices and Consumer Sentiment: German producer prices notably decreased by 0.5% in November, representing an annual decline of 7.9%. These falling factory gate prices are anticipated to positively influence German consumer sentiment heading into the new year, as per a GfK institute survey. The consumer sentiment index saw an increase to -25.1 points for January, surpassing forecasts and showing an improvement from the previous month’s revised reading of -27.6.
ECB and Eurozone: Although the European Central Bank kept interest rates unchanged and President Christine Lagarde resisted a dovish shift, eurozone’s CPI confirmed a 2.4% annual rate in November, close to the central bank’s 2% target. Investors now anticipate multiple rate cuts from the ECB in the upcoming year, potentially initiating in the first quarter.
Petrofac’s Optimistic Outlook: Petrofac (LON:PFC) witnessed a surge in stock prices following its optimistic outlook, driven by robust orders. This included a significant contract award worth around $1.4 billion from the Dutch electricity transmission system operator TenneT.
Oil Prices and Geopolitical Uncertainty: Amid unstable geopolitical situations in the Red Sea and unexpected U.S. crude stockpile growth, oil prices stabilized. The U.S. crude futures climbed 0.6% to $74.42 a barrel, and the Brent contract rose 0.5% to $79.64 a barrel. The recent disruptions in the Red Sea and the decision to avoid the Suez Canal heightened concerns about potential oil supply disruptions.
However, the American Petroleum Institute’s report, indicating a 900,000-barrel increase in U.S. crude inventories, opposed the expected draw, suggesting continued high production levels. The official Energy Information Administration report is expected later Wednesday.
Additionally, gold futures slightly increased to $2,053.25/oz, while the EUR/USD pair traded marginally lower at 1.0966.
