European markets fall 0.7%; euro zone GDP beats estimates

‍The pan-European Stoxx 600 index was down 0.7% in early afternoon trade. Data published in the morning showed that the euro zone economy grew by 0.1% in the last quarter of 2022. This was better than what analysts had estimated, which was a 0.1% contraction. However, it still represents a slowdown from the 0.3% growth that was seen in the third quarter.

January 31, 2023

7 minutes

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European markets continued to fall on Tuesday, despite euro zone growth figures coming in above expectations.

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The pan-European Stoxx 600 index was down 0.7% in early afternoon trade. Data published in the morning showed that the euro zone economy grew by 0.1% in the last quarter of 2022. This was better than what analysts had estimated, which was a 0.1% contraction. However, it still represents a slowdown from the 0.3% growth that was seen in the third quarter.

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Data published on Tuesday showed a surprise fall in German retail sales for December, painting a mixed picture ahead of the European Central Bank's interest rate hike decision on Thursday. Markets have priced in 50 basis point hikes at this and its next meeting, but there is uncertainty over its next moves. Among European stocks, most sectors were lower, with mining leading the losses. Mining stocks were down 2% for the day. Banks rose slightly after UniCredit and UBS reported results that beat expectations.

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Markets are also keeping an eye on the Federal Reserve's monetary policy decision on Wednesday. Most traders expect a 25 basis point increase, but they will be monitoring the Fed's commentary closely for clues about how much further it plans to raise rates, or when it might start cutting rates.
Asian markets were mostly lower on Tuesday, while U.S. stock futures also fell.

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The euro zone grew by 0.1% in the last quarter of 2022, according to preliminary data from Eurostat. This is a positive sign for the future of the euro zone economy.
Energy prices declined in the latter part of the year, providing some relief to the euro zone’s broader economic performance.

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The most recent figures show that the euro area posted a 0.3% GDP increase for the third quarter. This is positive news after a period of slower growth.
Germany's economy unexpectedly contracted in the fourth quarter of 2022, raising concerns that the country may be heading into a recession. This is a surprising development, as Germany is typically one of the strongest economies in Europe. Analysts are now watching to see how the country responds in the coming months.
UK grocery price inflation has reached a record high of 16.7% in the four weeks to January 22, an increase of 2.3% on the previous month, according to market research firm Kantar. This is the highest rate of inflation seen in the UK grocery market since Kantar began tracking prices in 2006.

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The figure, which is the highest since the company started tracking data in 2008, marks a further exacerbation of the country's cost-of-living crisis. This crisis has seen shoppers trade in branded food products for own-brand labels and discount retailers.

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"We thought inflation was coming down, but the recent uptick is not good news," Fraser McKevitt, head of retail and consumer insight at Kantar, told CNBC. Grocers have been "boosting their own-label ranges especially, with sales of these lines growing consistently over the past nine months." Private label lines saw a 9.3% increase over the period, with discount retailers Aldi and Lidl leading the way. Aldi was the fastest growing grocer for the fourth month in a row, just ahead of Lidl. This growth is indicative of a trend towards more affordable, private label products.

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Data published on Tuesday showed that economic growth in France slowed from 0.2% to 0.1% in the fourth quarter, while retail sales in Germany unexpectedly fell in December. These figures suggest that the economic recovery in Europe may be losing momentum. Joost van Leenders, senior portfolio manager at Kempen Capital Management, told CNBC that indicators such as the high level of corporate debt and the slowing of economic growth in China mean that the picture going into 2023 is not looking strong. He said that the possibility of recession in Europe and the U.S. is still firmly on the agenda.

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UniCredit was one of the top performers in early trading, rising 7.5% after the bank promised to return 5.25 billion euros ($5.69 billion) to shareholders following strong profits.

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Despite winning a U.S. Army contract yesterday, German arms manufacturer Rheinmetall dropped 6% today. The contract, which was awarded to Rheinmetall and General Motors, is valued at up to $14 billion and includes the supply of up to 40,000 trucks. Europe’s Stoxx 600 index opened slightly lower on Tuesday, continuing the downward trend from the previous day. Investors are digesting a flash estimate of euro zone GDP, which may provide some insight into the region’s economic health.

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Figures published early Tuesday from France showed that growth slowed from 0.2% to 0.1% in the fourth quarter of 2022. However, this was still ahead of expectations.
Financial services led the way down in early trading, with a 0.8% decline. Most other sectors were also in the red. Banks gained 0.6% after UniCredit and UBS beat profit expectations. This was a positive development for the sector, which has been struggling in recent months. This week, central bank rate hike decisions are due from the U.S. on Wednesday and from the U.K. and eurozone on Thursday. These decisions are likely to have a significant impact on markets.

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UniCredit announced on Tuesday that it would give back 5.25 billion euros ($5.69 billion) to investors after posting its most successful profit in over ten years.
The bank reported a net profit of 2.46 billion euros for the third quarter of the year, more than double the average forecast of 1.10 billion euros from analysts. This strong performance was driven by robust growth in the bank's core businesses.

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UniCredit stated that it is anticipating a net profit in 2023 that will be similar to the one in 2022, including its Russian business. This is after it had excluded this from its profit goal last year due to Russia's invasion of Ukraine.

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It has failed to extricate itself from Russia, where it owns a top 15 lender. UBS reported a fourth-quarter profit that beat market expectations, but the Swiss banking giant also reported a decline in revenues due to weaker client activity. The company warned that the coming year could be "uncertain."

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The bank reported net income of $1.7 billion for the fourth quarter of last year, bringing its full-year profit to $7.6 billion. This is a strong result for the bank, and underscores its commitment to profitability and growth. Looking ahead, the Swiss lender said that revenues for the first quarter of 2023 are expected to be higher than usual due to increased client activity and interest rates, as well as the easing of Covid-19 restrictions in Asia.

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The company was cautious about the economic outlook more broadly, citing central bank activity as a potential catalyst for market volatility.
UBS has announced that it will be repurchasing more of its own shares this year. This move signals the bank's confidence in its own future prospects.

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European markets are heading for a lower open Tuesday as investors focus on the next U.S. Federal Reserve meeting. The two-day meeting will conclude Wednesday with an announcement of the central bank’s latest interest rate decision. According to data from IG, the U.K.'s FTSE 100 index is expected to open 26 points lower at 7,758, Germany's DAX 79 points lower at 15,052, France's CAC down 40 points at 7,049, and Italy's FTSE MIB down 125 points at 26,260. Pets at Home, UBS and Spotify will all release earnings today, along with fourth-quarter euro zone gross domestic product data. German and French inflation data for January will also be released.

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Microsoft's disappointing revenue forecast last week caused some investors to worry about the earnings of other Big Tech companies. However, Microsoft's stock has since increased, indicating that the market may be more optimistic about the sector as a whole. Jeremy Gleeson, a tech fund manager who oversees the AXA Framlington Global Technology Fund, said that Microsoft's earnings contained enough bad news to spook investors into selling the stock.

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Gleeson told CNBC's "Squawk Box Europe" that the fact that the stock is up by more than 2% subsequently is an "encouraging" sign for the rest of Big Tech's earnings.
He believes that Apple and Alphabet will have a good week.

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Tesla's stock shot up by more than 30% last week after the company announced its earnings. So far this year, Tesla's shares have increased by around 44%.
In December 2022, Tesla shares slumped by over 35%, and by the end of the year they had fallen by around 65%. This was a very bleak period for the company.
Analysts are divided on where the stock will go next, after all the recent volatility. Some believe it will rebound, while others think it will continue to decline.
Monday saw a continued recovery in Chinese stocks, with the benchmark index coming close to a bull market. This positive trend is encouraging for investors and bodes well for the future of the Chinese economy.