Weekly Outlook: European economic indicators and UK inflation

Sponsored by iShares

Ready to rethink your portfolio? Putting cash to work with bond ETFs

17 December 2023

|

Monday 18 December

Full-year results from Hollywood Bowl
In Europe, quarterly results from electrolysis and green hydrogen specialist ThyssenKrupp Nucera
European economic indicator results

Germany’s Ifo survey will be released Monday 18 December while Belgium’s Courbe Synthetique comes out Friday 22 December, both of which are expected to provide insight to the current state of the economy throughout Europe.

During this time last year, Europe was put in a flux state as relations with Russia and China weakened, making for costly oil and gas. Germany struggled, and labour markets and banks faced challenging periods. While many of these challenges remain, effects may be lessening.

Russ Mould, AJ Bell investment director, and Danni Hewson, AJ Bell head of financial analysis, said: “The picture no longer looks quite so bleak. Oil and gas prices are in retreat, the EU is well stocked with liquified natural gas (LNG) as it weans itself off Russian supply and – as is also the case in the UK and USA – financial markets are looking forward to cuts from the European Central Bank in its Main Refinancing Rate in 2024 as inflation cools.”

Since June 2022, The European Central Bank has pushed the headline borrowing cost up from 0% to the 4.5% rate reached this Autumn.

“As a result, the Stoxx Europe 600 index is barely 5% below its January 2022 all-time peak and Germany’s forty-stock DAX benchmark stands at a record high after a near-20% gain in 2023, despite a revival of the late 1990s mantra that the country is the sick man of Europe, at least from an economic point of view,” Mould and Hewson said.

While Germany’s Ifo dipped in the summer, it recovered in November to 87.3 thanks to sectors including manufacturing, construction, and trade. The expectations reading has also continued to look up.

The Belgian Courbe Synthetique also increased in November to -15.0 after a dip starting in the spring. While the Synthetique used to align closely with the Stoxx Europe 600, the two have gone separate ways in the past year, a move Mould and Hewson say reflects that “stockmarket investors look more optimistic than the industrialists”.

Tuesday 19 December

First-half results from De La Rue
Interest rate decision from the Bank of Japan
EU inflation
US new housing permits
US new housing starts
In the US, quarterly results from Accenture and FedEx

Wednesday 20 December

Trading statement from Petrofac
Interest rate decision from the People’s Bank of China
EU consumer confidence
US Conference Board consumer confidence survey
US existing homes sales
US oil inventories
In the US, quarterly results from General Mills, Carnival, BlackBerry and Winnebago
UK inflation figures
Micron first quarter results

The UK will release inflation figures this Wednesday following an October where consumer price inflation hit 4.6%, the lowest reading since October 2021.

While inflation is still far above the 2% target, the lowering figure has prompted discussion of interest rate cuts from the Bank of England. However, the Monetary Policy Committee and governor Andrew Bailey have labelled these discussions as premature.

“Hopes for cooler inflation, no recession and lower interest rates are helping share prices in the US and EU and in theory the picture is fairly similar in the UK, even if the FTSE 100 is making heavy weather of making it back toward the 8,000 mark,” Mould and Hewson said.

“The UK’s headline index has made little progress in 2023 to date and, of the major markets, only China’s Shanghai Composite and Hong Kong’s Hang Seng have done worse in local currency terms.”

Inflation reached a peak in 2022 as the year on year change for consumer price index rocked well above 10%, prompting the Bank’s interested rate to jet up from 0.1% to 5.25% since the end of 2021. However, helped by lowering oil and gas prices, these numbers have started to cool.

“A further easing in the prevailing rate of inflation could give financial markets the courage of their convictions and leave the Bank of England in a quandary,” Mould and Hewson said.

“The lower bond yields go in response to expectations of falling rates, the looser monetary policy becomes, whether the Bank of England does anything or not, but presumably the MPC does not wish to raise rates again, having held the headline cost of borrowing at 5.25% since August. That could squeeze the economy too hard, especially as mortgage deals roll over and the government’s interest bill continues to surge.”