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European stocks retreat; BOE rate decision in focus

Published 08/03/2023, 04:14 PM
© Reuters.
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Investing.com - European stock markets traded sharply lower Thursday, as investors digested more corporate earnings and key economic data ahead of the Bank of England's latest rate decision.

At 04:00 ET (08:00 GMT), the DAX index in Germany traded 1.3% lower, the CAC 40 in France dropped 1.3% and the FTSE 100 in the U.K. traded 1.5% lower.

Bank of England set to hike once more

Risk appetite remained weak in Europe Thursday, following on from the previous session's sharp losses in the wake of the decision of rating agency Fitch to downgrade the United States’ credit rating,

Worries about the debt piles that governments around the world have accumulated remain, but attention Thursday is turning towards the Bank of England as it holds its latest policy-setting meeting later in the session.

This central bank is expected to hike once more by 25 basis points to 5.25%, and not the 50 bps of last month, after inflation fell to 7.9% in June, easing off 8.7% in May.

This is still substantially above the BOE’s 2% medium-term target, and investors will be keen to study the bank’s growth and inflation forecasts for indications of just how sticky inflation has become, and thus how long this tightening cycle will last.

German trade data disappoints

There is also an abundance of economic data due for release later Thursday, and the market received some good news after China started the day by releasing better-than-expected services activity, a boost after Monday’s weak manufacturing activity numbers.

However, German exports stagnated in June, with a smaller-than-expected rise of 0.1% over the previous month, while imports slumped 3.4% on the month.

"Trade is no longer the strong resilient growth driver of the German economy that it used to be, but rather a drag," said Carsten Brzeski, global head of macroeconomics at ING.

There is also services PMI data due throughout Europe, and is expected to confirm an expanding sector, as the services sector attempts to make up for manufacturing weakness, while the eurozone PPI release for June should confirm inflation is on the retreat.

Apple dominates the earnings slate

Apple (NASDAQ:AAPL), the world’s largest company by market capitalization, is set to announce earnings later in the session, and investors will be listening for any details on new product launches as well as any signs it will enter the much-hyped AI world.

Back in Europe, BMW (ETR:BMWG) stock fell 1.9% after the auto giant warned that supply chain issues remained, even as it lifted its full-year guidance.

Adidas AG (ETR:ADSGN) stock fell 0.7% after the German sportswear manufacturer's sales fell 5% in the second quarter but a release of Yeezy shoes helped its profit margin increase, narrowing a projected loss.

Societe Generale SA (EPA:SOGN) stock rose 1.7% after France's third-biggest listed bank reported better-than-expected quarterly earnings, as cost management and a strong growth of its car leasing division alleviated a steep fall in margins at its retail branch.

Rolls-Royce (LON:RR) stock fell 2.6% despite the aero-engineer reporting a jump in first-half profit, led by a large improvement in its civil aerospace margin, while Infineon (ETR:IFXGn) stock slumped 11% after the German chipmaker's margin outlook raised concerns about the chipmaker’s profitability.

Crude retreats despite record U.S. inventories draw

Oil prices fell Thursday on worries about the global economic outlook, even after a record drop in U.S. inventories indicated a substantial tightening in crude markets.

Official data, released Wednesday, showed that U.S. crude inventories shrank by over 17 million barrels in the week to July 28 - the biggest drop recorded in data stretching back to 1982.

By 04:00 ET, the U.S. crude futures traded 0.9% lower at $78.78 a barrel, while the Brent contract dropped 0.9% to $82.45.

Additionally, gold futures fell 0.1% to $1,972.70/oz, while EUR/USD traded 0.2% lower at 1.0919.

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