06.02.202323:56 Forex Analysis & Reviews: European markets opens the week lower

On Monday, major Western European indexes were down by 1% and more amid the general decline of the world stock markets. In this case, new macro data on the region provided support to European stocks.

The STOXX Europe 600 index was down 0.82% at 457.01 points.

The French CAC 40 shed 1.53%, the German DAX dropped 1.09% and the British FTSE 100 lost 0.17%.

Biggest gainers and losers

Shares of British liquor maker Diageo Plc fell 0.2% on a report of the company's offer to increase its stake in East African Breweries PLC to a maximum 65% from the current 50%.

UK financial conglomerate Prudential Plc dropped 3.4%.

Shares of the British-Swedish pharmaceutical company AstraZeneca Plc fell by 1%.

Adidas AG, a German company producing sportswear, footwear and accessories, collapsed by 3.3%.

Shares of the Italian bank Intesa Sanpaolo rose by 1.7% due to strong quarterly reports.

Market sentiment

On Monday, investors assessed macro data of the euro area countries. Retail sales in the 19 countries sharing the euro in December fell 2.7% m/m. Analysts had expected a decline by 2.5%. A 2.8% y/y decline was recorded, while experts estimated a 2.7% drop.

Meanwhile, the S&P Global Eurozone Construction PMI rose to 46.1 in January 2023 - the highest level in seven months - from December's 42.6 points. In France, the figure jumped to 48.4 points from 41 points a month earlier.

According to Destatis (federal statistics office), German industrial orders soared 3.2% on the month on a seasonally and calendar-adjusted basis. Experts on average expected growth only by 2%.

Germany's Construction PMI, rose to 43.3 in January from 41.7 in the previous month. Traditionally, the value of the index below 50 points indicates a decrease in activity.

Traders around the world are focused on America's unexpectedly strong unemployment report. Last Friday, the U.S. Labor Department reported that the nation's economy added 517,000 jobs in January, while the unemployment rate dropped to its lowest level since 1969, 3.4%, versus December's 3.5%. Analysts had assumed that the number of jobs in America rose by 185,000 last month and the unemployment rate rose to 3.6%.

New data on the U.S. labor market significantly worsened investor sentiment. Traders are worried that the Federal Reserve will take drastic steps to tighten monetary policy in the near future.

Fed Chairman Jerome Powell is scheduled to speak at the Economic Club in Washington DC this week. He could provide new information on the US central bank's plans.

Previous trading results

On Friday, European markets closed mostly higher. Britain's FTSE 100 soared to a record high, but retreated from the level closer to the trading close. The day before, traders analyzed the results of the meetings of the US Federal Reserve, European Central Bank and the Bank of England. Weak quarterly reports from major local companies weighed down European stocks.

The STOXX Europe 600 index rose 0.34% to 460.77 points. Over the past week, the index added 1.2%.

French CAC 40 gained 0.94%, German DAX gained 0.21% and British FTSE 100 gained 1.04%.

Shares of French pharmaceutical giant Sanofi fell by 1.9% despite its strong financial results. In the fourth quarter of 2022, net income jumped 29.1% to 1.46 billion euros, and revenue by 7% to 10.725 billion euros. In addition, Sanofi raised the dividend. However, the key reason for the fall of its shares was the dissatisfaction of investors about the decline in revenues for a number of products of the company.

French energy conglomerate TotalEnergies gained 2.1%. The company has agreed to sell a 50% stake in its 234MW renewable project portfolio to Credit Agricole Assurances, a local insurer.

Shares of Italian automaker Ferrari N.V. dropped 1.9%. The company increased its net profit by 13% last year.

Swedish carmaker Volvo Car AB fell 2.3% despite a 2% year-on-year increase in car sales last month.

The share price of French medical equipment maker Orpea S.A. plummeted by 21.5%.

Intesa Sanpaolo, an Italian bank, collapsed by 2.9%. The lender said net income in the three months to the end of December was 1.07 billion euros against 179 million euros in the same period last year. Analysts had expected a figure of 900 million euros.

The share price of the Swiss online pharmacy Zur Rose has grown by 30%.

Swedish manufacturer of door locks Assa Abloy AB rose by 4.4% amid strong statements. In the fourth quarter of 2022, its operating profit increased by 28% and dividends by 14%.

On Friday, investors were analyzing the weak financials of key euro-region companies, which pushed them away from risk.

In addition, traders discussed the results of the Fed's February meeting. On Wednesday, as expected, the U.S. central bank increased the interest rate by 25 basis points up to 4.5-4.75%. In comments after the meeting, Fed Chairman Jerome Powell said that the U.S. central bank will keep the course on tightening monetary policy until consumer prices return to the target level.

As part of the December meeting, the Fed raised the interest rate by 50 basis points to 4.25-4.5, the highest level since 2007.

On Thursday, the BoE raised its interest rate by 50 basis points to 4%.

The results of the ECB meeting were announced on Thursday evening. The central bank raised the key interest rates by 50 basis points to their highest level since 2008. At the moment, the interest rate is 3%.

In December 2022, the ECB raised its benchmark interest rate by 50 basis points to 2.5% from 2%. In addition, the central bank said they believe a further rate hike is necessary to meet the 2% inflation target.

On Friday, European investors also analyzed new data on key countries of the region. The S&P Global Eurozone Services PMI came in at 50.8 in January 2023, little-changed from a preliminary estimate of 50.7 and above the previous month's 49.8. Traditionally, the value of the index above 50 points indicates an increase in business activity in the service sector.