European stocks reflect weak data, recession fears

European shares struggled for traction after the latest economic data highlighted Germany’s struggle to recover from an energy-induced downturn last winter and the mounting impact of higher borrowing costs.

A drop in household spending drove Germany’s contraction in the third quarter as Europe’s largest economy that’s beset by a budget crisis and probably in recession. Although a separate report showed business confidence improved for a third month in November, the measure fell below analysts’ expectations.

While some cyclical economic indicators in Europe appear to have bottomed, “that doesn’t mean they were good,” said Karsten Junius, chief economist at Bank J. Safra Sarafin Ltd. “They still point to a negative fourth quarter and hence recessionary territory in the second half of 2023.”

The Stoxx Europe 600 index fluctuated, on track for a modest weekly gain. BASF SE led an advance for the chemical sector after Bloomberg News repored that Abu Dhabi National Oil Co. is exploring an acquisition of its Wintershall Dea unit. US equity futures were steady.

Treasuries declined after trading resumed following a holiday, paring gains for the month. The 10-year yield rose more than seven basis points. European bonds extended declines following a report Thursday that Germany will suspend debt limits for a fourth consecutive year, adding to concerns over more borrowing. The Bloomberg dollar index steadied. 

Still, global stocks are on track for the best month in three years, with the MSCI All Country World Index up 8.6% this month amid growing hopes for peaking US interest rates.

“Lower bond yields are driving equity valuations, although the fundamental reason behind the drop in yields, lower inflation caused by weaker growth, isn’t completely discounted into earnings estimates,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. “Eventually, profit expectations will have to align with economic reality.”

European Central Bank President Christine Lagarde will be speaking later on Friday, after mixed messages from other policy makers. Governing Council Member Robert Holzmann said there’s equal probability of a rate hike or cut in the second quarter of 2024, while his colleague Francois Villeroy de Galhau said the central bank won’t increase borrowing costs again, unless there is an unexpected event.

Hong Kong and mainland Chinese equities dropped, reversing Thursday’s rally inspired by Beijing’s widening property rescue campaign. Japanese stocks rose in catch-up play after a national holiday, while those in Australia also gained.

In China, a gauge of developer stocks fell 1.9% in mid-afternoon trade, following a 8.9% jump Thursday. The previous surge came after Bloomberg News reported that China may allow banks to offer unsecured short-term loans to qualified builders for the first time, the latest effort to arrest a housing slump. 

“The property developer debt issue will be solved sooner or later,” said Jian Shi Cortesi, a fund manager at GAM Investment Management. “If this measure is not enough, we will see more support next year,” she added, referring to the report on banks extending unsecured loans. 

Oil steadied on news that OPEC+ will hold its delayed meeting online rather than in-person. The delay, and discord between members over quotas, has cast doubt on the prospect of further production cuts.

Inflation in Japan accelerated, although the October reading was slightly less than expected. Consumer prices rose 3.3% year-over-year, shy of the 3.4% consensus estimate. This went against the Bank of Japan’s view that prices will decelerate, likely strengthening expectations of policy normalization. The yen edged stronger versus the dollar.

Key events this week:

• US S&P Global Manufacturing PMI, Friday
• Black Friday, traditional kick-off for the US holiday shopping season
• ECB’s Christine Lagarde speaks, Friday

Some of the main moves in markets:  

Stocks

• The Stoxx Europe 600 was little changed as of 10:01 a.m. London time
• S&P 500 futures were little changed
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average rose 0.2%
• The MSCI Asia Pacific Index fell 0.4%
• The MSCI Emerging Markets Index fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0903
• The Japanese yen was little changed at 149.62 per dollar
• The offshore yuan fell 0.1% to 7.1594 per dollar
• The British pound rose 0.1% to $1.2548

Cryptocurrencies

• Bitcoin rose 1.1% to $37,647.82
• Ether rose 2% to $2,109.7

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.47%
• Germany’s 10-year yield advanced two basis points to 2.64%
• Britain’s 10-year yield advanced four basis points to 4.29%

Commodities

• Brent crude rose 0.2% to $81.56 a barrel
• Spot gold rose 0.1% to $1,994.55 an ounce

This story was produced with the assistance of Bloomberg Automation.