European stock indexes today do not show unified dynamics during trades. Composite index of the largest companies in the region, Stoxx Europe 600, decreased by 0.29% to 437.66 points.
Current European stock market – current situation
Germany’s DAX stock index was down 0.25%. France’s CAC 40 was down 0.09% and Spain’s IBEX 35 was down 0.06%. The British FTSE 100 rose 0.16%, the Italian FTSE MIB – 0.13%.
Investors are increasingly concerned about the negative impact of tightening financial conditions on economic growth in the region and the profits of companies, writes Trading Economics. The situation was also reflected in the Euro Fx Futures.
Market participants are waiting for meetings of several major central banks next week and are assessing statements by representatives of the European Central Bank (ECB).
Inflation in the eurozone is close to a peak, ECB Chief Economist Philip Lane said the day before.
“It is too early to conclude that inflation has peaked, but I can say with confidence that we are close to peaking,” Lane told Italian newspaper Milano Finanza.
The ECB raised all three key interest rates by 75 bps in October. The benchmark interest rate on loans was raised to 2%; the rate on deposits – to 1.5%; the rate on margin loans – to 2.25%. Since July this year, the ECB has raised key rates by 200 bp.
Experts expect the lending rate to rise to at least 2% from 1.5% in December.
Meanwhile, data from Germany’s Federal Statistical Office (Destatis) released Wednesday showed that industrial production in Germany fell by 0.1% in October compared to the previous month. Analysts polled by Trading Economics had on average expected a larger decline of 0.6%.
Earlier we reported that data on a decline in Chinese exports dropped Asia’s stock market.
Main US stock indices S&P 500 and Nasdaq rose by 1.5-3.3%, Dow Jones fell slightly
Main U.S. stock indices S&P 500 and Nasdaq Composite hit their highest levels in five months yesterday, while Dow Jones Industrial Average ended the trading session at a slight decline.
Other tech companies were also up 7.3%: Alphabet (NASDAQ:GOOGL) Inc. gained 7.3%, Amazon.com Inc (NASDAQ:AMZN) gained 7.4% and Apple Inc (NASDAQ:AAPL) gained 3.7%. Inflation appears to have peaked and interest rates should stabilize, removing major headwinds for tech stocks,” deVere Group Chief Executive Officer Nigel Green suggested.
U.S. stock indices futures – what’s influencing current prices?
On Thursday, traders also assessed the results of the Federal Reserve’s meeting and the latest statistical data.
The Fed on Wednesday expectedly raised interest rates by 25 basis points. Now its range is 4.5-4.75% a year – the maximum since 2007.
The head of the US Central Bank Jerome Powell, said at a press conference following the meeting that inflation in the US continues to remain significantly higher than the Fed’s long-term target, which is 2%. He said he does not expect rates to fall in 2023 if economic indicators are in line with the forecasts.
Also affecting US stock index futures is the fact that the number of Americans filing for unemployment benefits for the first time last week fell by 3,000 to 183,000, the Labor Department said. This is the lowest value since April 2022. The results came as a surprise to analysts, who on average had forecast the number of applications to rise to 195,000, according to Bloomberg. Trading Economics respondents had expected an even larger increase, to 200,000.
U.S. labor productivity rose 3 percent in the fourth quarter and labor costs rose 1.1 percent, preliminary data from the Labor Department showed. Experts on average were predicting a 2.4% increase in the former and a 1.5% increase in the latter, Trading Economics reported. MarketWatch respondents had expected a 2.5% and 1.5% increase, respectively.
The Dow Jones Industrial Average on Thursday decreased 39.02 points (0.11%) to 34053.94. Leading the declines among index components were shares of insurers UnitedHealth Group (NYSE:UNH) and Travelers Cos. down 5.3% and 1.9%, respectively, as well as Boeing Co (NYSE:BA). – (NYSE:BA.) by 2.5% and Merck.
Meanwhile, Standard & Poor’s 500 rose 60.55 points (1.47%) to 4,179.76 points on the day. The Nasdaq Composite Index gained 384.5 points (3.25 per cent) to 12,200.82 points.
Earlier we reported that strategist Morgan Stanley expects the rally in the US stock market to end.
Morgan Stanley strategist expects U.S. stock market rally to end this week
The unexpected rally stock market rally in the U.S. stock market in early 2023 could come to an end as early as this week, after the Federal Reserve raised interest rates for the eighth straight meeting. Michael Wilson, senior U.S. equity market strategist at Morgan Stanley (NYSE:MS), believes.
“We think this dynamic reflects more of a seasonal effect and the closing of short positions after December and last year’s decline in general,” the bank’s analyst team, led by Wilson, said in a report. – In fact, the financials are even worse than expected, especially regarding profitability.”
What is a rally in the stock market?
Since the beginning of January, the S&P 500 is up 4.6% and the Dow Jones Industrial Average is up 1.7%. The Nasdaq Composite index of high-tech companies jumped 8.9%, the fastest pace for January since 2001.
According to Wilson, such dynamics are excessive, and all positive factors are already built into current quotes.
In particular, the Fed will almost certainly raise interest rates by 25 basis points at the end of its first meeting of the year, which ends Wednesday evening. The Fed leadership has not yet given signals about its readiness to stop raising rates, and it contradicts market expectations, the expert noted.
Earlier strategists at Morgan Stanley warned that the beginning of a recession in the U.S. economy could lead to a decline in U.S. stocks by 22% from their current levels by the end of 2023.
Earlier, we reported that the U.S. stock market index will reach new lows in 2023.
U.S. stock market index to hit new lows in 2023
Investors are showing weak confidence in the U.S. stock market index even after a rally this month, with most believing the market has yet to bottom out because of concerns about corporate earnings, Bloomberg reported.
That’s the view of about 70% of the agency’s 383 respondents. At the same time, 35% said that the market will fall to a minimum in the second half of this year. Less than a quarter of respondents believe that the bottom has already been reached.
The survey results indicate that investors remain in deep turmoil after last year’s stock collapse. At the same time, they expect corporate earnings to deteriorate due to an expected slowdown in the global economy.
Almost half of respondents said the key factor for the U.S. stock market today will be quarterly reports from several companies, rather than the Federal Reserve’s decision or a speech by its head, Jerome Powell. The Fed is expected to raise the benchmark rate by just a quarter of a percentage point on Feb. 1, the smallest increase in almost a year.
The Standard & Poor’s 500 stock index is up 6% since the start of 2023. That’s the best reading for January since 2019, as signs of slowing inflation and economic growth spurred expectations that the Fed is nearing the end of its tightening cycle. But the most aggressive rate hikes in decades, combined with rising prices and wages, have created a challenging environment for corporations to ramp up profits.
About 90% of respondents expect inflation to continue to weaken this year but remain above the Fed’s target of 2%. Analysts expect U.S. economic activity to decline in the second and third quarters.
Traders in the bond market expect the economic picture to be so disappointing that the Fed will have to cut rates later this year. At the same time, based on futures quotations, it will be raised to about 5% per annum by the middle of the year.
That contrasts with statements by Fed officials that the central bank would raise rates above 5% rather than lower them this year.
Earlier, we reported that Adani Group’s losses were gaining catastrophic momentum.
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