Tag Archives: Euro

Business

Euro zone GDP, Fed meeting in focus

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Euro zone economy posts surprise expansion in the fourth quarter, curbing recession fears

The euro zone grew 0.1% in the last quarter of 2022, according to preliminary Eurostat data released Tuesday.

Energy prices cooled off in the latter part of the year, bringing some relief to the euro zone’s broader economic performance.

The latest figures come after the euro area posted a 0.3% GDP increase for the third quarter.

Germany surprised to the downside at a country breakdown level. The biggest European economy contracted by 0.2% in the last quarter of 2022, with analysts now expecting Berlin will head into a recession.

— Silvia Amaro

UK grocery price inflation hits a record 16.7%

U.K. grocery price inflation hit a record 16.7% in the four weeks to January 22, an increase of 2.3% on the previous month, market research firm Kantar said Tuesday.

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

Consumers have been feeling the pinch from higher food prices as inflation soars.

Nathan Stirk | Getty Images News | Getty Images

“We thought inflation was coming down; the fact it’s gone back up isn’t great 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.”

Own-label lines grew by 9.3% over the period, while discount retailers Aldi became the fastest growing grocer for the fourth month in a row, just ahead of Lidl.

— Karen Gilchrist

Recession in Europe and U.S. still very possible, portfolio manager says

Data published Tuesday showed economic growth in France slowed from 0.2% to 0.1% in the fourth quarter, while retail sales in Germany unexpectedly fell in December.

Joost van Leenders, senior portfolio manager at Kempen Capital Management, told CNBC these and other indicators meant the picture going into 2023 was “not that strong” and the possibility of recession in Europe and the U.S. was “still firmly on the agenda.”

— Jenni Reid

Stocks on the move: UniCredit up 7.5%, Rheinmetall down 6%

UniCredit was the top performer in early trade, rising 7.5% after the bank promised to dish out 5.25 billion euros ($5.69 billion) to shareholders following bumper profits.

German arms manufacturer Rheinmetall dropped 6% despite yesterday announcing it had won a U.S. Army contract, alongside General Motors, to supply up to 40,000 trucks valued at up to $14 billion.

— Jenni Reid

European markets open lower with eyes on GDP data, central bank meetings

Europe’s Stoxx 600 index opened 0.2% lower, extending Monday’s slide as investors prepared to chew over a euro zone GDP flash estimate.

Figures published early Tuesday from France, the bloc’s second-largest economy, showed growth slowed from 0.2% to 0.1% in the fourth quarter of 2022. That was nonetheless ahead of expectations.

Most sectors were in the red in early trade, led by financial services, down 0.8%.

However, banks gained 0.6% after UniCredit and UBS beat profit expectations.

Stoxx 600 one-week performance.

Also dominating markets this week are central bank rate hike decisions due from the U.S. Wednesday and from the U.K. and eurozone Thursday.

— Jenni Reid

UniCredit hikes payout goal by 40% after record profit

UniCredit pledged on Tuesday to return 5.25 billion euros ($5.69 billion) to investors after posting its best profit in over a decade.

The bank said net profit came in at 2.46 billion euros in the three months through December, more than twice an average forecast of 1.10 billion euros ($1.2 bln) from analysts polled by the bank.

UniCredit said it expected to post a net profit in 2023 broadly in line with 2022 including its Russian business, after it had excluded this from its profit goal last year following Russia’s invasion of Ukraine.

It has failed to extricate itself from Russia where it owns a top 15 lender.

UniCredit one-year share price.

Swiss bank UBS gets a boost from higher interest rates, beats expectations in fourth quarter

UBS’ fourth-quarter profit beat market expectations, but the Swiss banking giant reported a fall in revenues on the back of weaker client activity and warned of an “uncertain” year ahead.

The bank reported $1.7 billion of net income for the fourth quarter of last year, bringing its full-year profit to $7.6 billion in 2022. 

Looking ahead, the Swiss lender said that revenues for the first quarter of 2023 were set to be “positively influenced” by higher client activity and interest rates, as well as by the easing of Covid-19 restrictions in Asia.

However, it was cautious about the economic outlook more broadly, citing central bank activity as a potential catalyst for market volatility.

UBS said it will be purchasing more of its own shares this year.

Read the full story here.

— Silvia Amaro

European markets: Here are the opening calls

European markets are heading for a lower open Tuesday as investors focus on the next U.S. Federal Reserve meeting, which begins today. The two-day meeting will conclude Wednesday with an announcement of the central bank’s latest interest rate decision.

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, according to data from IG.

Earnings come from Pets at Home, UBS and Spotify, and data releases include fourth-quarter euro zone gross domestic product data. Preliminary German and French inflation data for January is also due to be released.

— Holly Ellyatt

CNBC Pro: What one tech fund manager is expecting from Apple and Alphabet earnings this week

Microsoft issued a disappointing revenue forecast last week, but its stock has since increased. What does that mean for the other Big Tech companies set to report earnings?

Tech fund manager Jeremy Gleeson, who manages the £1.1 billion ($1.5 billion) AXA Framlington Global Technology Fund, said there was enough bad news in Microsoft’s earnings to “spook” investors into selling the stock.

However, the fact that the stock is up by more than 2% subsequently is an “encouraging” sign for the rest of Big Tech’s earnings, Gleeson told CNBC’s “Squawk Box Europe”.

He shared his thoughts on what to expect from Apple and Alphabet this week.

CNBC Pro subscribers can read more here.

— Ganesh Rao

CNBC Pro: Tesla shares rose 30% last week. Here’s where Wall Street sees it going next

Just last week, the electric-vehicle maker’s stock leaped by more than 30% following its earnings announcement. This year so far, Tesla shares are up by around 44%.

It follows a bleak 2022 when Tesla shares slumped over 35% in December and around 65% over the year.

After all this volatility, here’s where Wall Street analysts see the stock going next:

CNBC Pro subscribers can read more here.

— Weizhen Tan

CNBC Pro: Can Chinese stocks rally further? One investment bank thinks so — and names its top stock picks

The recovery in Chinese stocks gained steam on Monday, as China’s benchmark index came within striking distance of a bull market.

Bernstein’s analysts believe the rally has further to go and reveal their top stocks to play it.

Pro subscribers can read more here.

— Zavier Ong

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Business

Inflation euro zone December 2022 drops as energy costs ease

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Inflation in Europe has been impacted by higher energy prices and supply shortages. Analysts question how far central banks will go to bring inflation under control.

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Inflation in the euro zone dropped for a second consecutive month in December, but analysts do not expect it to spark a change in tone from the European Central Bank.

Headline inflation, which includes food and energy costs, came in at 9.2% year-on-year in December, according to preliminary data Friday from the European statistics agency, Eurostat. It follows November’s headline inflation rate of 10.1%, which represented the first slight contraction in prices since June 2021.

The euro area economy has come under immense pressure in the wake of Russia’s invasion of Ukraine in February 2022, with energy and food costs soaring last year. In an effort to battle rising prices, the European Central Bank increased interest rates four times in 2022 and said it is likely to continue doing so this year. The bank’s main rate currently sits at 2%.

Despite further signs that inflation is easing, analysts say it is too early to celebrate and do not expect a pivot from the region’s central bank.

Interest rates will “get to 3(%) and probably have to hold that all through the year even as the recession becomes more and more evident,” Hetal Mehta from Legal & General Investment Management told CNBC’s “Street Signs” Thursday.

It comes after ECB President Christine Lagarde struck a particularly hawkish tone in December: “We’re not pivoting, we’re not wavering, we are showing determination.” She added that the bank has “more ground to cover.”

The ECB cannot and will not base its policy decisions on highly volatile energy prices.

Carsten Brzeski

global head of macro, ING Germany

Speaking earlier this week, ECB Governing Council member and French Central Bank Governor Francois Villeroy de Galhau said interest rates might peak by this summer.

The ECB also said in December that it will start reducing its balance sheet in March at a pace of 15 billion euros ($15.8 billion) per month until the end of the second quarter. This step is also expected to address some of the region’s inflationary pressures.

At the time, the central bank forecast an average inflation rate of 8.4% for 2022, 6.3% for 2023 and 3.4% for 2024. The bank’s mandate is to work toward a headline inflation figure of 2%.

Earlier this week, data out of Germany showed inflation dropping from 10% in November to 8.6% in December.

Carsten Brzeski, global head of macro at ING Germany, said these numbers “are not a relief, yet, only a reminder that euro zone inflation is still mainly an energy price phenomenon.”

Energy costs have dropped in Europe in recent months. Natural gas prices, for instance, traded at around 72.42 euros per megawatt hour on Friday — sharply lower than their peak of 349.90 euros per megawatt hour in August.

Among inflation components, energy continued to represent the biggest driver in December, but came off from previous levels. Energy costs dropped from 34.9% in November to an estimated 25.7% in December, according to the latest figures.

“The ECB cannot and will not base its policy decisions on highly volatile energy prices. Instead, the central bank will, in our view, hike interest rates at the next two meetings by a total of 100 basis points,” Brzeski said in a note.

Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, also said in a note this week that he sees “little relief” in the inflation data, “which will keep the ECB on alert at the start of the year.” He expects two rate hikes of 50 basis points in the first quarter.

In terms of national breakdown, the Baltic nations once again registered the highest jumps in inflation, with a rate of about 20%.

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Business

Euro zone inflation hits 10.7% in October

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Inflation in the euro zone remains extremely high. Protestors in Italy used empty shopping trolleys to demonstrate the cost-of-living crisis.

Stefano Montesi – Corbis | Corbis News | Getty Images

Euro zone inflation rose above the 10% level in the month of October, highlighting the severity of the cost-of-living crisis in the region and adding more pressure on the European Central Bank.

Preliminary data on Monday from Europe’s statistics office showed headline inflation came in at an annual 10.7% last month. This represents the highest ever monthly reading since the euro zone’s formation. The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months. But the increases have been accentuated by Russia’s invasion of Ukraine in late February.

This proved to be the case once again, with energy costs expected to have had the highest annual rise in October, at 41.9% from 40.7% in September. Food, alcohol and tobacco prices also rose in the same period, jumping 13.1% from 11.8% in the previous month.

“Inflation surged again in October and are a proper Halloween nightmare for the ECB,” analysts at Pantheon Macroeconomics, said in an email.

Salomon Fiedler, an economist at Berenberg, said the “continuing surge in consumer prices and still-resilient domestic demand in the summer indicate a risk that the European Central Bank may hike rates by 75 basis points in December, rather than the 50 basis points we currently expect.”

Italy’s inflation above 12%

Monday’s data comes after individual countries reported flash estimates last week. In Italy, headline inflation came in above analysts’ expectations at 12.8% year-on-year. Germany also said inflation jumped to 11.6% and in France the number reached 7.1%. The different values reflect measures taken by national governments, as well as the level of dependency that there nations have, or had, on Russian hydrocarbons.

There are, however, euro nations where inflation rose by more than 20%. This includes Estonia, Latvia and Lithuania.

The European Central Bank — whose primary target is to control inflation — on Thursday confirmed further rate hikes in the coming months in an attempt to bring prices down. It said in a statement that it had made “substantial progress” in normalizing rates in the region, but it “expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.”

The ECB decided to raise rates by 75 basis points for a second consecutive time last week.

Speaking at a subsequent press conference, ECB President Christine Lagarde said the likelihood of a recession in the euro zone had intensified.

Growth figures released Monday showed a GDP (gross domestic product) figure of 0.2% for the euro area in October. This is after the region grew at a rate of 0.8% in the second quarter. Only Belgium, Latvia and Austria registered GDP rates below zero.

So far, the 19-member bloc has dodged a recession but an economic slowdown is evident. Several economists predict there will be a contraction in GDP during the current quarter.

Andrew Kenningham, chief Europe economist at Capital Economics, said “the increase in euro zone GDP in the third quarter does not alter our view that the euro zone is on the cusp of a recession.”

“But with inflation having jumped to well over 10%, the ECB will prioritise price stability and press on with rate hikes regardless,” he added.

The euro traded below parity against the U.S. dollar in early European trading hours Monday and ahead of the new data releases, and barely moved after the new figures. The euro has been weaker against the greenback and that’s also something the ECB has been concerned about with concerns that this will push up inflation in the euro zone even further.

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Business

Nissan takes $687 mln loss as sells Russian business for 1 euro

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  • Sale to Russian state-owned entity NAMI
  • Nissan has right to buy back business within six years
  • Renault sees 331 mln euro hit to H2 net income from move

TOKYO, Oct 11 (Reuters) – Nissan Motor Co Ltd (7201.T) will hand over its business in Russia to a state-owned entity for 1 euro ($0.97), it said on Tuesday, taking a loss of around $687 million in the latest costly exit from the country by a global company.

The Japanese automaker transfer its shares in Nissan Manufacturing Russia LLC to state-owned NAMI, it said. The deal will give Nissan the right to buy back the business within six years, Russia’s industry and trade ministry said.

The deal makes Nissan the latest major company to leave Russia since Moscow sent tens of thousands of troops into Ukraine in February. It also mirrors a move by Nissan’s top shareholder, French automaker Renault (RENA.PA), which sold its majority stake in Russian carmaker Avtovaz (AVAZI_p.MM) to a Russian investor in May.

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The sale to NAMI will include Nissan’s production and research facilities in St Petersburg as well as its sales and marketing centre in Moscow, the ministry said.

Nissan said it expected an extraordinary loss of around 100 billion yen ($687 million), but maintained its earnings forecast for the financial year ending in March.

Renault, which owns 43% of Nissan, estimated the decision by its Japanese partner would lead to a 331 million euro hit to its net income for the second half of 2022.

Nissan had suspended production at its St. Petersburg plant in March due to supply chain disruptions. Since then, the company and its local unit had been monitoring the situation, it said. But there was “no visibility” of a change to the external environment, Nissan said, prompting it to decide to exit.

Junior alliance partner Mitsubishi Motors Corp (7211.T) is also considering exiting Russia, the Nikkei newspaper said. A spokesperson for Mitsubishi said nothing had been decided.

The exit comes as Nissan has embarked on a major shift in its relationship with Renault. The two said on Monday they were in talks about the future of their alliance, including Nissan considering investing in a new electric vehicle venture by Renault.

Those talks, which could prompt the biggest reset in the alliance since the 2018 arrest of long-time executive Carlos Ghosn, have also included the possibility of Renault selling some of its controlling stake in Nissan, two people with knowledge of the talks have told Reuters.

Renault reportedly sold its stake in Avtovaz for one rouble ($0.02).

The Nissan deal was “of great significance for the industry,” Russia’s Industry and Trade Minister Denis Manturov said in a statement.

($1 = 145.6200 yen)

($1 = 63.8500 roubles)

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Reporting by Gleb Stolyarov, Caleb Davis and Satoshi Sugiyama; Writing by Alexander Marrow and David Dolan; Editing by Louise Heavens and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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Sterling, euro rally against dollar after BoE buys UK bonds

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NEW YORK/LONDON, Sept 28 (Reuters) – After tumbling earlier, sterling rallied against the dollar on Wednesday following the Bank of England’s (BOE) purchase of UK government bonds, letting some air out of the greenback’s progress broadly after it had touched a fresh 20-year high.

The BoE said it received 2.587 billion pounds’ ($2.78 billion) worth of offers in its first bond buyback operation aimed at stabilizing the market, and had accepted only 1.025 billion pounds’ worth. The central bank had committed to buying as many long-dated government bonds, know as gilts, as needed between Wednesday and Oct. 14.

As markets tried to digest what the move meant for the pound, the currency whipsawed during Wednesday’s session, jumping as high as $1.09165 and falling as low as $1.05390. It was last up 1.51% at $1.08921.

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The BoE intervention was driving currency trading broadly, according to Erik Nelson, macro strategist at Wells Fargo.

“You had financial stress everywhere. The yields were rising and the dollar was rising. It was sort of feeding on itself. We needed something or someone to stop the financial stress and financial panic that was happening. The BoE stepped in there,” said Nelson. “The easing of the financial stress has helped sterling and other currencies rally against the dollar.”

But the relief for sterling may be temporary as the UK still has to deal with macro trends such as high inflation.

“It’s a currency-negative policy. You’re offering to limit the increase of yields at a time of high inflation,” said Nelson. “The dollar will continue to go up over the next few months. … The U.S. is growing at a much more solid pace, at least for now, versus the UK and Europe, and the U.S. doesn’t have the same kind of energy crisis as the UK and Europe.”

Currency investors have also been monitoring Russia’s war against Ukraine and energy uncertainty in Europe after leaks on Nord Stream pipelines between Russia and Europe spewed gas into the Baltic Sea, said Brad Bechtel, global head of FX at Jefferies in New York. NATO Secretary-General Jens Stoltenberg and others have attributed the leaks to acts of sabotage.

The dollar index , which measures the greenback against a group of major currencies, was last at 112.660 after hitting a fresh 20-year high of 114.78.

While the dollar initially had broad-based gains, the greenback eased sharply as the U.S. trading session progressed, with the euro last up 1.52% at $0.9739 after falling as low as $0.95355 .

The dollar was last down 0.61% against Japan’s yen at 143.955 after touching a high of 144.860 .

The Australian dollar , which is particularly sensitive to swings in investor sentiment, was last up 1.410%.

Elsewhere in Asia, the offshore yuan hit a record low, pressured by expectations of further U.S. rate hikes.

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Reporting by Sinéad Carew in New York, Rae Wee in Singapore and Alun John in London ; editing by Richard Pullin, Kim Coghill, Shri Navaratnam, Gareth Jones and Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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Business

European stocks slide 2.8% after weak euro zone data, new UK economic plan

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European stocks were sharply lower on Friday, as investors digested a raft of central bank decisions and a new economic plan from the U.K.

The Stoxx 600 was down 2.8% in early afternoon trading, with all sectors and major bourses trading in the red.

Oil and gas stocks and basic resources were the biggest fallers, both down more than 4%.

Thursday’s market moves come after the U.K. government announced a raft of tax cuts as the country prepares for a recession. Sterling was down 1.8% against the dollar around midday to trade at $1.1048 following the news.

The Bank of England also hiked rates by 50 basis points Thursday — its seventh consecutive increase — and said it believed the U.K. economy was already in a recession.

Also Thursday, the Swiss National Bank hiked its benchmark rate to 0.5%, a shift that brings an end to an era of negative rates in Europe.

The U.S. Federal Reserve, meanwhile, hiked by another three-quarters of a percentage point Wednesday, and indicated that the hikes will keep on coming.

U.S. stocks closed lower Thursday, their third consecutive daily decline, and futures were also lower on Friday.

Asia markets, meanwhile, were in the red, with Australian stocks down 2%.

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Porsche IPO: Volkswagen targets 75 billion euro valuation

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Volkswagen (VLKAF) will price preferred shares in the flotation of Porsche AG at 76.50 euros to 82.50 euros per share, the carmaker said, translating into a valuation of 70 billion to 75 billion euros.

At the upper end of the range, first reported by Reuters, it would become Europe’s third largest IPO on record, according to Refinitiv data. Trading will begin on the Frankfurt Stock Exchange on Sept. 29, Volkswagen said.

As part of the listing, 911 million Porsche AG shares will be divided into 455.5 million preferred shares and 455.5 million ordinary shares. Up to 113,875,000 preferred shares, carrying no voting rights, will be placed with investors over the course of the IPO.

The sovereign wealth funds of Qatar, Abu Dhabi and Norway as well as mutual fund company T. Rowe Price will subscribe up to 3.68 billion euros worth of preferred shares as cornerstone investors, at the upper end of the valuation, Volkswagen said.

“We are now in the home stretch with the IPO plans for Porsche and welcome the commitment of our cornerstone investors,” Volkswagen Chief Financial Officer and Chief Operating Officer Arno Antlitz said.

In line with Volkswagen’s agreement earlier in September with its largest shareholder Porsche SE, 25% plus one ordinary share in the sportscar brand, which do carry voting rights, will go to Porsche SE at the price of the preferred shares plus a 7.5% premium.

Porsche SE, the holding firm controlled by the Porsche and Piech families, will finance the acquisition of the ordinary shares with debt capital of up to 7.9 billion euros, it said in a separate statement.

Total proceeds from the sale will be 18.1 billion to 19.5 billion euros. If the IPO goes ahead, Volkswagen will call an extraordinary shareholder meeting in December where it will propose to pay 49% of total proceeds to shareholders in early 2023 as a special dividend.

A stock exchange prospectus is expected to be published on Monday, after which institutional and private investors can subscribe to Porsche shares.

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European shares, euro jump on Ukrainian advances in northeast

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LONDON, Sept 12 (Reuters) – European shares jumped on Monday after Ukrainian forces made a rapid advance in Kharkiv province in Russia’s worst setback since its Kyiv push was abandoned in March, while the euro extended on last week’s European Central Bank inspired gains.

On Saturday, Moscow abandoned its main bastion in northeastern Ukraine, in a sudden collapse of one of the war’s principal front lines after Ukrainian forces made a rapid advance. read more

The broad pan-European STOXX 600 (.STOXX) index was up 0.7% in early trade, hitting its highest since the end of August.

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Germany’s DAX (.GDAXI) rose 1.4%, France’s CAC 40 (.FCHI) and Britain’s FTSE 100 (.FTSE) both jumped 1%.

Asian shares also rallied in slow trading with China and South Korea out for a holiday.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 0.7%, having bounced modestly from a two-year low hit last week. Japan’s Nikkei (.N225) added another 1.2%, after rallying 2% last week.

“The Russia-Ukraine situation is creating some glimmers of hope for the market that there might be a resolution and provide some relief on the intensity of the energy shock,” said Hani Redha, a multi-asset portfolio manager at PineBridge Investments.

“For now, the balance of information we have is being interpreted as bullish by the market,” added Redha.

The news of Ukrainian advances also helped lift the euro, which extended last week’s post European Central Bank (ECB) gains to rise to its highest against the dollar in almost four weeks.

The single currency was also helped in part by a Reuters report that European Central Bank policymakers see a growing risk that they will have to raise their key interest rate to 2% or more to curb record-high inflation despite a likely recession. read more

The euro was last up 1.5% to $1.0194, touching its highest against a softening dollar since Aug. 17.

Meanwhile, peripheral euro zone government bonds underperformed their peers, hurt by reports that the ECB may next month kick off a debate about reducing the size of their balance sheet.

Italy’s 10-year government bond yield rose as much as 6.5 basis points to 4.098%, its highest since mid-June.

Germany’s 10-year yield was up 4 basis points, pushing the closely watched spread between Italian and German 10-year yields to as wide as 237 basis points. ,

“There is an urgency to front load rate hikes and take rates to neutral as soon as possible,” said Mohit Kumar, interest rate strategist at Jefferies, in a note.

“Once we reach levels close to neutral, we do expect the doves to take back control at the ECB and hence see the recent shift as a front loading exercise rather than a fundamental shift in ECB policy,” Kumar added.

The dollar index , which measures the greenback against a basket of six currencies, was down 0.7% to 107.98, its lowest since Aug. 26.

Still, the index is up over 12% this year, having gained over 10% against the euro, 13% against the pound and 24% against the Japanese yen.

U.S. inflation data released on Tuesday will be key for determining the direction of travel in the near term.

Falling petrol prices are seen pulling down the headline consumer price index by 0.1%, according to a Reuters poll.

The core is forecast to rise 0.3%, though some analysts see a chance of a softer report.

“Commodities, in general, have been coming off and that’s likely to be the main driver of softer numbers,” PineBridge’s Redha said.

A soft number might revive speculation the Federal Reserve will only hike by 50 basis points this month, though it would likely have to be very weak to have a real impact given how stridently hawkish policymakers have been recently. read more

Oil prices have been trending lower amid concerns about a global economic slowdown, though cuts to supply did prompt a 4% bounce on Friday.

On Monday, Brent was steady at $92.82 a barrel, while U.S. crude slipped 0.2% to $86.60.

The weaker dollar helped lift gold to $1,724 an ounce, away from last week’s low of $1,690.

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Reporting by Samuel Indyk in London, additional reporting by Wayne Cole in Sydney

Our Standards: The Thomson Reuters Trust Principles.

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Business

Euro zone inflation hits another record of 9.1% as food and energy prices soar

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Inflation continues to hit new records just as the European Central Bank mulls another large interest rate hike for next month.

NurPhoto / Contributor / Getty Images

Euro zone inflation hit a new record high in August of 9.1%, according to flash figures from Europe’s statistics office Eurostat, with high energy prices the main driving force.

The rate was above expectations, with a Reuters poll of economists anticipating a rate of 9%. It is the ninth consecutive record for consumer price rises in the region, with the climb starting back in November 2021. Headline inflation in the euro zone hit 8.9% (year-on-year) in July.

Energy had the highest annual inflation rate at 38.3%, Eurostat said Wednesday, down slightly from 39.6% in July. Food, alcohol and tobacco were up 10.6% compared to 9.8% in July, with the knock-on effects of recent heatwaves across the continent contributing to increases.

Non-energy industrial goods, such as clothing, household appliances and cars were up 5% compared to last year, a 0.5 percentage point increase on last month, while services were up by 3.8% in price year-on-year, 0.1 percentage points more than in July.

French and Spanish inflation slows

Drilling down into national figures, the French inflation rate decreased to 6.5% in August, down from 6.8% in July. The rate was lower than expectations, with economists polled by Reuters having anticipated a drop to 6.7%.

Spain also released slowing inflation figures for August, at 10.3% year-on-year compared to 10.7% for July, according to the Eurostat flash estimate.

Meanwhile, the region’s largest economy, Germany, saw inflation reach its highest level in almost half a century at 8.8% year-on-year in August.

Estonia currently has the highest inflation rate in the euro zone at 25.2%, followed by Lithuania (21.1%) and Latvia (20.8%). Malta and Finland follow France with the lowest inflation rates, at 7.1% and 7.6% respectively.

The ECB ‘has some catching up to do’

Inflation continues to hit new records just as the European Central Bank mulls another large interest rate hike for next month.

The ECB increased interest rates by 50 basis points to zero on July 21 – its first rate hike in 11 years – and a similar, or larger, hike is now expected on Sept. 8.

“Some members are inclined to advocate a 75 basis points interest rate increase,” Peter Schaffrik, global macro strategist at RBC Capital Markets, told CNBC’s “Squawk Box Europe” on Wednesday.

“Despite the slowdown in the economy that we will almost certainly be getting, the central banks won’t let up on their hiking path,” he said.

The outlook for Europe’s economy is “pretty bleak,” Kenneth Wattret, head of economics at S&P Global Market Intelligence, told CNBC’s “Street Signs Europe” on Aug. 23.

“It looks inevitable that the euro area is headed for a recession. The question is only how deep it will be and how long it will last,” he said. The ECB “has some catching up to do,” according to the economist.

“The ECB is way behind the curve, inflation is exceptionally elevated and likely remain that way for at least the next seven months,” Wattret said.

France’s Finance Minister Bruno Le Maire told CNBC’s Charlotte Reed Tuesday that inflation is a main focus for the nations of Europe in the short term. “The key challenge that we all have to face for the next weeks and the next months, is to reduce the level of inflation everywhere in Europe,” Le Maire said.

“So it’s up to the ECB to take the right decisions, and we fully trust the ECB to take the right decisions, but the key point is to have a decrease in the level of inflation everywhere in Europe,” he said.

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Euro trades at two-decade low against dollar, and it could slide further

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Traders work the floor of the New York Stock Exchange during morning trading on August 15, 2022 in New York City.

Michael M. Santiago | Getty Images

The euro traded at a two-decade low of 0.9903 against the U.S. dollar Tuesday morning, with analysts predicting the single currency will continue to slide.

“Our outlook and our trades and our position on the strategist side are definitely biased towards further euro depreciation from where we are now,” Luis Costa, head of CEEMEA strategy at Citibank, told CNBC’s “Squawk Box Europe” on Tuesday.

“This is the primary point of euro vulnerability now,” Costa said. 

There are multiple factors at play when comparing the euro and the dollar, working in tandem with the ongoing conflict in Ukraine and mounting inflation across both regions.

Wholesale gas prices in Europe rose sharply on Monday after Russia announced unscheduled maintenance on its main pipeline to Germany, Nord Stream 1, while heat waves have put additional strain on energy supplies.

For the full picture, you also have to look beyond Europe and the United States, says Costa.

“Let’s not forget there is an additional layer of complexity here from the China slowdown which obviously hits Europe with a much higher magnitude when compared to the impact in the States,” he said.

China missed GDP expectations with growth of just 0.4% in the second quarter. The world second-largest economy has struggled with the aftermath of the country’s worst Covid-19 outbreak since the start of 2020.

Until May, markets were “considering hawkish flight paths” for the European Central Bank and the Bank of England, according to Costa, but those plans have “imploded” in recent months. 

“Talking about ECB liftoff… It’s absolutely glaring that ECB room to lift rates will be minimal,” he said.

Global finance institution ING’s Roelof-Jan Van den Akker made similar predictions on CNBC’s “Squawk Box Europe” last week, suggesting a widening in the interest rate differential between the U.S. dollar and the euro, as well as a further weakening of the single currency.

“[The dollar] broke below the 103.60 support level. That’s a very crucial horizontal support … And I suggest that there’s further downside potential to go. Longer-term target of between $0.80 to $0.75 in the coming months,” Van den Akker said.

“It confirms there is dollar strength as well as euro weakness,” he told CNBC.

The predictions echo concerns that inflation will continue to rise and that a recession in Europe is now unavoidable.

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