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European Stocks Continue to Rise on Hopes of a Slowdown in the Fed's Rate Hikes; U.S. Markets Closed

European markets were positive on Thursday as investors analyzed the latest meeting minutes from the U.S. Federal Reserve.

November 24, 2022
13 minutes
minute read

European markets were positive on Thursday as investors analyzed the latest meeting minutes from the U.S. Federal Reserve.

The Stoxx 600 closed up 0.5% provisionally, with a third straight session of gains taking it to a more than three-month high. Chemicals stocks led the way, adding 1.1% as all sectors and major bourses edged into positive territory.

The minutes from the Fed's November meeting showed that the central bank is making progress in its fight against inflation and is planning to slow the pace of interest rate hikes. This means that rates will be increased at a smaller rate through the end of this year and into 2023.

The minutes from the meeting stated that a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.

European investors reacted to Wednesday's flash November PMI readings from the euro zone, which showed that the 19-member currency bloc has entered recession, but the downturn in business activity is slowing slightly.

After the Federal Reserve said it expected to switch to smaller rate hikes "soon," markets in the Asia-Pacific region traded higher overnight. This positive reaction indicates that investors believe the Fed's decision will be beneficial for the economy.

U.S. stocks closed higher on Wednesday, ahead of the Thanksgiving holiday. The market was bolstered by positive economic data and optimism about a potential vaccine for the coronavirus.

European markets closed higher for a third straight session on Thursday, with the Stoxx 600 index gaining 0.5%.

The FTSE 100 was flat while France’s CAC 40 climbed 0.4% and Germany’s DAX added 0.8%. The chemicals sector led the way, with a 1.1% gain.

The best-performing stock on the day was LEG Immobilien, a German property company, which rose 6.7% after Morgan Stanley upgraded it to “overweight.”

The outlook for the global economy has been bolstered by recent developments regarding interest rates in the United States and Europe. In the United States, the Federal Reserve appears to be slowing the pace of interest rate hikes, while in Europe, data from the Purchasing Managers' Index (PMI) this week showed that the euro zone's downturn in business activity has slowed slightly. These positive developments suggest that the global economy may be stabilizing after a period of uncertainty.
A new report from the German central bank forecasts a slowdown in the housing market, but no significant correction.

Claudia Buch, vice president of the Bundesbank, told CNBC that they are seeing a slowdown in the price growth for residential real estate, but that the overall dynamic has not reversed. She said that there are still overvaluations in the market.

LEG Immobilien shares rose 6.5% in afternoon trading on Wednesday, after Morgan Stanley upgraded the German property company's stock to "overweight" from "equal-weight."

Bridgepoint Group, a British private investment company, saw its shares rise by more than 5%.

Turkey's central bank on Thursday cut interest rates by 150 basis points to 9% and decided to end its cycle of monetary policy easing. The bank cited increased inflation risks as the reason for the decision.

The Central Bank of the Republic of Turkey (CBRT) has been under pressure from President Recep Tayyip Erdogan to keep interest rates low, despite high inflation. In October, inflation hit 85.5% year-on-year, driven by rising food and energy prices.

The central bank has announced that it is ending the cycle of interest rate cuts that began in August, citing increased risks in the global economy. In a statement, the bank said that it believes the current policy rate is adequate in light of these risks.

The German business climate index from the Ifo Institute rose to 86.3 points in November, up from 84.5 in October. This indicates improving conditions for businesses in Germany.

"Companies are less satisfied with their current business, but pessimism about the coming months has decreased sharply," said Ifo President Clemens Fuest. "The recession could be less severe than many had expected."

According to Fuest, the index climbed significantly in manufacturing, where companies were less pessimistic about the future, but assessed their current situation as worse. This indicates that manufacturing companies are less optimistic about the future, but feel that their current situation is worse off.

"The number of new orders fell again," he said. "While uncertainty about future business development remains high, it did fall a little. But in energy-intensive industries, uncertainty rose further."

Sterling rose above $1.20 on Wednesday evening as the US dollar weakened in response to weak PMI data and minutes from the last Federal Reserve policy meeting.

The pound continued its upward trend on Thursday, gaining another 0.3% to trade at around $1.209. The euro and Japanese yen also made gains against the retreating greenback.

Jean Christophe-Babin of Italian luxury fashion house Bulgari Group says that while demand for entry-level products tends to contract during economic recessions, higher-end consumers still have disposable income.

There was little movement in share prices among European blue chip companies on Thursday morning.

Elekta, a Swedish manufacturer of radiation therapy equipment, fell more than 4% on the Stoxx 600 after missing second-quarter earnings expectations.

At the top of the index, Universal Music Group rose 3.3%.

If a short-seller's prediction comes true, investors in a British supermarket company will face more pain.

The hedge fund is currently betting that shares in the grocer will fall by 44%. If their prediction comes true, they stand to make a profit of £32.6 million.

The fund's chief investment officer also believes that the supermarket will raise fresh capital by diluting shareholders year after year to keep itself afloat in a challenging environment.

Rob Luna, chief investment strategist at asset manager Surevest, believes that investors should buy into one large-cap stock right now. Luna cites the stock's strong fundamentals and attractive valuation as reasons to believe that it will continue to perform well in the future. He calls its CEO a "visionary leader."

Luna advised investors to reallocate into smaller companies, naming two stocks that he considered to be the best in their respective fields.

European markets are set to open higher on Tuesday, with investors in the region appearing to shrug off concerns about China's tightening of Covid restrictions. U.S. and Asia-Pacific markets have been under pressure in recent days as the restrictions have begun to impact output.

According to data from IG, the U.K.’s FTSE index is expected to open 27 points higher at 7,407, Germany’s DAX up 33 points at 14,419, France’s CAC up 20 points at 6,653 and Italy’s FTSE MIB up 70 points at 24,433.

The release of preliminary consumer confidence data for the euro zone in November provides insights into the economic health of the region. The data can help policymakers and businesses make informed decisions about the future.

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Adan Harris
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John Liu
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Adan Harris
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