What’s that coming over the hill?
It’s the European stock market, gathering momentum in the early stages of 2023. The Stoxx 600 Index, which comprises 90% of the market capitalisation of the European stock market (not limited to the Eurozone, FYI) is now trading at its highest level since May 2022.
The movement north on the charts has been sparked by indications that inflation may have peaked. While it is early days yet, inflation for December was announced last week at 9.2%, below expectations of 9.5%. While that is still an egregiously high number, the fact it is down from 10.15 the previous month is giving impetus to markets.
China opening up giving further push to markets
There was more than just inflation that was buoying markets. Market sentiment this week has been propelled by further reopening of the Chinese economy. China resumed quarantine-free travel over the weekend, a watershed moment for the nation following nearly three years of shut borders.
While COVID cases are surging in the country – reports claim anywhere from 50% to 70% of Shanghai’s 25 million residents may be infected – this is actually a good thing for markets. While it may sound callous, the quicker COVID blitzes through the better, from an economic standpoint at least. The fact that travel is now opening up too has signalled that once and for all, COVID restrictions finally seem to have released their stranglehold on the world.
Asian markets have perceptibly turned a corner in the last month since China’s COVID policy flipped:
German and French markets rise, unemployment stubborn
Looking within Europe, the French market was boosted last week by a soft inflation reading. German stocks, meanwhile, rose following industrial production numbers coming in above expectations for November.
Unemployment across the eurozone is also giving good news. Or, at least on the surface it is. The joblessness figure came in at 6.5% for November, which is the same as it was for October. This is the lowest number since record-taking began in 1998.
This is interesting data because inflation is peeling back – even slightly – while employment is remaining tight. Many analysts – myself included – had warned that inflation would not be beaten without a perceptible rise in unemployment. The labour market must loosen and demand must drop.
However, unemployment should be expected to rise. Europe has no doubt enjoyed what is definitely a more positive outlook today than it was last month, but the overall picture still remains ominous. Recessionary pressures are increasing, with the ECB having been forced to hike to their highest levels since 2008. This kills debt-laden economies such as Italy, who get squeezed by the higher interest payments on said debt.
There is simply no way that unemployment will not rise somewhat in the first half of this year as the pressure intensifies. But for the first time in a long while, there is a little bit of hope abounding in the euro bloc that things perhaps will not be as bad as they appeared over the past few months.
Times are tough, but in tough times, is it not even more important to celebrate the small victories?
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