Europe's Growth Outlook Worsens

Businessman, Internet, Continents

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A strong non-farm payrolls report on Friday dashed hopes that the Federal Reserve might tone down its aggressive campaign to rein in the highest inflation in decades. As long as the labor market remains strong, the Fed will seek to raise rates as much as possible so that it can have room to lower them when unemployment starts to rise, and the economy falls into recession. The likelihood of a 75 basis point Fed rate hike at the September meeting has increased even more. Signs that inflation still hasn't peaked could affect expectations that the central bank could stop raising rates early next year, leading to a stock decline.

The US stock indices traded mixed on Friday. The Dow Jones Index (US30) increased by 0.23% (+0.15% for the week), and the S&P 500 (US500) decreased by 0.16% (+0.80% for the week). The Nasdaq Technology Index (US100) lost 0.50% (+2.76% for the week).

Chicago Fed President Charles Evans, Minneapolis Fed President Neel Kashkari, and San Francisco Fed President Mary Daly are due to speak this week. Investors should closely watch their comments for what sentiment prevails within the US Federal System. Fed Governor Michel Bowman said Saturday that the Fed should consider a 75-bp rate hike to bring inflation back in line with the central bank's target, echoing recent comments from other Fed officials.

The US stock market is about halfway through its second-quarter reporting period, and so far, US companies have reported mostly upbeat reports and forecasts. These surprising investors had been preparing for a weaker reading. According to Reuters, about 78% of earnings reports beat Wall Street expectations, above the long-term average.

Stock markets in Europe were mostly down on Friday. Germany's DAX (DE30) decreased by 0.65% (+0.76% for the week), France's CAC 40 (FR40) lost 0.63% (+0.39% for the week), Spain's IBEX 35 index (ES35) added 0.08% (+0.05% for the week) the British FTSE 100 (UK100) closed down by 0.11% (-0.16% for the week).

European stocks fell on Friday after a stronger-than-expected US jobs report boosted bets for another 75 basis point rate hike by the Federal Reserve next month. At the same time, worries about worsening growth prospects in the Eurozone prompted investors to close their equity positions. Analysts predict that the situation in Europe will only worsen, and the European Central Bank will raise interest rates more aggressively.

UN Secretary-General António Guterres called Monday for international inspectors to be granted access to the Zaporizhzhia nuclear power plant after Russia shelled Europe's largest nuclear power plant over the weekend. Ukrainian President Vladimir Zelensky accused Russia of waging "nuclear terror," which calls for new international sanctions, this time against Moscow's nuclear industry.

Staff at German airline Lufthansa and management reached a wage agreement, preventing further strikes during the busy summer tourist season.

Despite supply chain problems, industrial production in Germany showed an unexpected but modest increase in June, official data showed.

Brent crude oil fell 1.4% on Friday to $92.81 a barrel. It dropped below $93 a barrel for the first time since February 21. WTI crude fell by 1.5% to $87 a barrel. Oil prices continued to decline on Monday as recession fears weighed on demand prospects and data on crude imports into China pointed to a slow recovery.

Asian markets traded higher last week. Japan's Nikkei 225 (JP225) gained 1.30%, Hong Kong's Hang Seng (HK50) gained 0.88%, and Australia's S&P/ASX 200 (AU200) was up by 1.01%.

China's export growth unexpectedly accelerated in July, providing an encouraging boost to the economy. Still, weakening global demand could slow supplies in coming months. Exports rose 18.0% in July from a year earlier, the fastest pace this year.

In the commodities market, orange juice (+6.05%), platinum (+4.73%), and sugar (+2.34%) futures showed the biggest gains by the end of the week. Futures on WTI oil (-10.23%), lumber (-9.87%), Brent oil (-9.76%), gasoline (-8.95%), wheat (-3.87%), coffee (-3.78%), and natural gas (-2.72%) showed the biggest drop.

  • S&P 500 (F) (US500) 4,145.19 −6.75 (−0.16%)
  • Dow Jones (US30) 32,803.47 +76.65 (+0.23%)
  • DAX (DE40) 13,573.93 −88.75 (−0.65%)
  • FTSE 100 (UK100) 7,439.74 −8.32 (−0.11%)
  • USD Index 106.58 +0.88 (+0.84%)

Important events for today:

  • New Zealand Inflation Expectations (q/q) at 06:00 (GMT+3);
  • Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3).

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Disclosure: This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, ...

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