European Equities: ECB President Lagarde, Earnings, and Yields in Focus

The Majors

It was another bullish day for the European majors on Wednesday. The DAX rose by 0.65%, with the CAC40 and the EuroStoxx600 ending the day with gains of 0.30% and 0.48% respectively.

Inflation and FED monetary policy remained key areas of focus for the markets. A sharp acceleration in German wholesale inflation pegged back the DAX on the day. Autos were among the worst performers, while it was a mixed session for the banks.

Ahead of the European open, PBoC monetary policy took centre stage, with China’s central bank cutting the 1-year loan prime rate (LPR) from 3.8% to 3.7%. The PBoC also cut the 5-year LPR from 4.65% to 4.6%.

The ECB’s monetary policy meeting minutes from the 15-16^th December meeting had limited influence, however. In contrast to the FED, the ECB continued to view inflation as transitory, with the ECB seeing inflation declining sharply in 2022.

The Stats

It was a busier day on the Eurozone economic calendar. Finalized December inflation figures for Eurozone and German wholesale inflation figures were in focus.

Eurozone Inflation

In December, the Eurozone’s annual rate of inflation picked up from 4.9% to 5.0%, which was in line with prelim figures.

Month-on-month, consumer prices increased by 0.4%, which was also in line with prelim figures. In November, consumer prices had also risen by 0.4%.

According to Eurostat,

• A year earlier the Euro area’s annual rate of inflation was -0.3%.
• The lowest annual rates of inflation were registered in Malta (2.6%) and Portugal (2.8%).
• Estonia (12.0%) registered the highest annual rate of inflation, followed by Lithuania (10.7%).
• The highest contribution to the annual euro area inflation rate came from energy (+2.46 percentage points), followed by services (+1.02 pp), non-energy industrial goods (+0.78 pp), and food, alcohol, & tobacco (+0.71 pp).

German Wholesale Inflation

In December, Germany’s annual wholesale rate of inflation accelerated from 19.2% to 24.2% versus a forecasted 19.4%.

Month-on-month, Germany’s PPI jumped by 5.0% versus a forecasted 0.8%. In November, the PPI rose by 0.8%.

According to Destatis,

• Year-on-year, the increase was the highest ever.
• Compared with December 2020, energy prices were up 69% and up by 15.7% compared with November 2021.
• Strong price increases of natural gas (distribution) and electricity drove energy prices.
• Excluding energy, the overall index was up 10.4% up on December 2020.
• Prices of intermediate goods increased by 19.3%, while prices of non-durable consumer goods rose by 4.7% compared with December 2020.

From the U.S

Weekly jobless claims and manufacturing data were in focus.

In the week ending 14^th January, initial jobless claims jumped from 231k to 286k. Economists had forecast a fall to 220k.

On the positive, however, was a rise in the Philly FED Manufacturing Index from 15.4 to 23.2 in January.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Thursday. Volkswagen fell by 0.51%, with BMW declining by 1.05%. Continental and Daimler slid by 1.72% and by 1.74% respectively.

It was another mixed day for the banks, however. Deutsche Bank fell by 0.92%, while Commerzbank ended the day up by 1.54%.

From the CAC, it was a mixed day for the banks. BNP Paribas slid by 1.97%, with Credit Agricole falling by 0.37%. Soc Gen ended the day up by 0.16%

The French auto sector had a bearish session, however. Stellantis NV slid by 3.88%, with Renault ending the day down by 0.25%.

Air France-KLM rose by 1.10%, with Airbus SE ending the day up by 0.52%.

On the VIX Index

It was a third consecutive day in the green for the VIX on Thursday.

Following a 4.65% gain on Wednesday, the VIX rose by 7.30% to end the day at 25.59.

The NASDAQ slid by 1.30%, with the Dow and the S&P500 seeing losses of 0.89% and 1.10% respectively.

The Day Ahead

It’s quiet day ahead on the Eurozone’s economic calendar. There are no major stats from the Eurozone to provide the majors with direction. While there are no stats, ECB President Lagarde is scheduled to speak. Expect any commentary relating to the economic outlook, inflation, or monetary policy to influence.

From the U.S, there are no major stats due out to provide the majors with direction. The lack of stats will leave crude oil prices and the bond markets in focus.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 56 points.

For a look at all of today’s economic events, check out our economic calendar.