Euro Area Activities Rebounded, UK Factory Orders Dropped, French Services Contracted

  • Bridgette Randall
  • Jan 24, 2023
  • European market indexes paused amid mixed but generally weak economic data. The UK budget deficit widened after record borrowings in December.

    European markets were on the backfoot after aggressive rate hike worries returned following the release of business activities index. 

    Stocks lacked direction in choppy trading after natural gas prices plunged but the rebound in business activities rekindled the worries of aggressive rate hikes at the next policy meetings in February and March. 

     

    European Business Activities Rebound 

    The S&P Global Composite Purchasing Managers' Index increased to 50.2 in January 2023 from 49.3 in December 2022 after falling for six months in a row. 

    The rebound in service activities in pharmaceuticals, healthcare and technology and smaller contraction in manufacturing activities improved the index.   

     

    European Market Indexes Paused 

    European indexes paused as investors weighed earnings optimism and weakening energy prices against the rate hike worries. 

    The DAX index decreased 0.3% to 15,057.73,  the CAC-40 index traded up a fraction to 7,032.26 and the FTSE !00 index decreased 0.4% to 7,755.79. 

     

    Dollar Hovers Near 9-month Low

    The U.S. dollar hovered near a 9-month low on the hopes that the Federal Reserve will moderate its aggressive rate hike posture and pivot to smaller rate increases at the meeting next week. 

    The euro inched lower to $1.08, the British pound traded near $1.228 and the Swiss franc hovered near 92.63 U.S. cents. 

     

    Bond Yields Advanced On Rate Hike Worries 

    The yield on 10-year German Bunds increased to 2.20%, French bonds to 2.64%, the UK Gilts to 3.33% and Italian bonds to 3.997%. 

     

    Natural Gas Prices Drops 10% 

    Natural gas prices fell for the second day in a row and dropped near a 16-month low as cold snap faded and warmer-than-usual temperatures are expected to return this week. 

    Brent crude oil decreased 12 cents to $88.06 a barrel and the Dutch TTF natural gas dropped 9.7% to €59.60 per MWh. 

     

    French Services Contracted In January 

    The French service sector contracted for the third month in a row, S&P Global Service PMI data showed Tuesday. 

    French Service PMI declined to 49.2 in January 2023 from 49.5 in December 2022, third monthly decline in a row and the sharpest pace since March 2021. 

    New order flows declined on the persistent economic uncertainties and higher inflation and rising borrowing costs but on the positive side new job addition rate improved. 

     

    British Manufacturing Weakness Persists 

    The British manufacturing sector continued to face headwinds amid persistent high inflation and energy prices and economic uncertainties, data from the Confederation of British Industries showed Tuesday. 

    The order book balance declined 11 points in January to -17 from December, the weakest since February 2021 according to the latest Industrial Trends Survey.   

    The price expectations for the next three months eased to +41 from +52 in December on the easing of supply chain constraints and labor shortages and falling natural gas prices.

     

    UK Borrowings Soared In December 

    The UK budget deficit widened to the record December-level after the government revved up energy subsidies and higher rates lifted interest payments. 

    Public sector net borrowing, excluding government controlled banks, increased to  £27.4 billion, record high since monthly records began in January 1993, the Office for National Statistics reported Tuesday. 

    December’s borrowing was £16.7 billion higher from the previous year and £9.8 billion higher than the latest official forecast published by the Office for Budget Responsibility. 

    Central government debt interest payable increased to £17.3 billion in December 2022, the highest December payment since monthly records began. 

     

    Europe Stock Movers 

    Associated British Foods Plc declined 2.2% to 1,829.0 pence after the owner of Primark said revenue in the 16-week period ending on January 7 rose 20% to £6,698 million. 

    Revenue in constant currency rose 16% and the stronger U.S. dollar drove the nominal exchange rate based revenues. 

    "We continue to encounter significant cost pressures but inflation has become less volatile and recently some commodity costs have declined. 

    Consumer spending has proven to be more resilient in this trading period than anticipated at the start of the financial year," the company said in its latest trading update. 

    For the full year, the company estimated "result overall is unchanged with a significant growth in sales, and adjusted operating profit and adjusted earnings per share to be lower than the previous financial year."

    Technip Energies NV declined 1.9% to €16.93 despite the company winning a contract in Saudi Arabia. 

    Saudi Arabia-based Aramco awarded a contract to modernize sulfur recovery facilities to the French engineering and technology company.  

    Marston's Plc increased 6.2% to 43.42 pence after the pubs operator said sales increased during holiday period. 

    Comparable sales in the 16-week period ending on January 21 increased 20% from the previous year. 

    Comparable sales in the five-day holiday period, Christmas Eve, Christmas Day, Boxing Day, New Year’s Eve and New  Year’s Day, jumped 26% and sales in the similar period two-years ago rose 12.9%. 

    The company said total retail sales at the company owned and managed and franchised pubs were up 14.0% on last year and up 7.3% from the fiscal year 2020. 

    Beverage sales continued to outperform food sales.