European stock markets demonstrated strength on Wednesday, with the FTSE 100 leading the charge. This bullish sentiment was driven by a sharp deceleration in U.K. inflation, fueling growing optimism that central banks will initiate monetary policy easing in the early part of the coming year. At 03:10 ET (08:10 GMT), Germany's DAX index traded 0.2% higher, France's CAC 40 registered a 0.3% gain, and the U.K.'s FTSE 100 soared by 1.5%.
Notable Slowdown in U.K. Inflation
Earlier on Wednesday, key data was unveiled, revealing a substantial decline in U.K. annual consumer price inflation for the month of November. It plummeted to 3.9% from October's 4.6%, marking the lowest rate since September 2021. Moreover, the critical core annual figure, which excludes the impact of volatile food and energy prices, also posted an unexpectedly substantial drop, falling from 5.7% to 5.1%.
Bank of England's Policy Stance
While the Bank of England (BoE) opted to keep its primary interest rate unchanged at its recent meeting, it made it clear that interest rates would remain elevated for an extended period. Three policymakers continued to advocate for another rate hike. The swift progress in driving inflation closer to the BoE's 2% medium-term target is heightening market expectations that officials will endorse a rate cut during the first half of the new year, with the aim of bolstering the decelerating economy.
Positive Indicators for German Consumer Sentiment
German producer prices also displayed a more substantial decline than anticipated, dropping 0.5% on a monthly basis in November, resulting in an annual decrease of 7.9%. This reduction in factory gate prices is expected to contribute to improved German consumer sentiment as the new year unfolds. A survey by the GfK institute indicated a noteworthy improvement, although starting from a rather low level. The forward-looking consumer sentiment index advanced to -25.1 points for January, up from a revised -27.6 the preceding month and surpassing expectations for a reading of -27.0.
ECB Interest Rates and Eurozone CPI
The European Central Bank (ECB) opted to maintain its interest rates at the current levels during its recent meeting. Although ECB President Christine Lagarde dismissed any notions of a dovish shift, eurozone Consumer Price Index (CPI) figures for November, confirmed on Tuesday, stood at an annual rate of 2.4%. This is in close proximity to the central bank's 2% target, sparking investor anticipation of multiple rate cuts by the ECB next year, with initial moves possibly taking place in the first quarter.
Corporate Highlights: Petrofac's Strong Outlook
In the corporate arena, Petrofac (LON:PFC) witnessed a substantial surge in its stock price. The oilfield services company described its outlook as robust, underpinned by strong orders. This included the acquisition of a second contract as part of a six-project, $14 billion deal with the Dutch electricity transmission system operator TenneT, valued at approximately $1.4 billion.
Stabilizing Crude Oil Prices Amid Geopolitical Tensions
Crude oil prices exhibited stability on Wednesday as market participants closely monitored the volatile geopolitical situation in the Red Sea. This uncertainty emerged alongside news of an unexpected increase in U.S. crude stockpiles. U.S. crude futures rose by 0.6% to reach $74.42 per barrel by 03:10 ET, while the Brent contract increased by 0.5% to $79.64 per barrel.
Crude prices made a strong recovery this week from nearly five-month lows, primarily due to oil companies and shipping operators announcing their intentions to bypass the Suez Canal. This decision was prompted by attacks on vessels in the Red Sea, carried out by the Yemen-backed Houthi group, which had the potential to disrupt oil supplies to the crucial Asian market.
However, gains have since stabilized after data released by the American Petroleum Institute revealed an unexpected surge of 900,000 barrels in U.S. crude inventories last week. This contradicted expectations of a drawdown of 2.2 million barrels. The official data from the Energy Information Administration is scheduled for release later on Wednesday. The API's findings indicate that U.S. production continues at record-high levels.
Gold Futures and EUR/USD Movement
Gold futures posted a modest 0.1% increase, reaching $2,053.25 per ounce, while EUR/USD experienced a 0.1% decline, trading at 1.0966. Overall, European stock markets benefited from a sharp slowdown in U.K. inflation, bolstering optimism about the likelihood of central banks implementing monetary policy adjustments in the near future.
