European markets rally after Eurozone averts recession

Market commentary

European markets rallied on Wednesday as the Eurozone narrowly averted a technical recession in the fourth quarter of 2023 and reported higher-than-expected industrial production output. GDP flatlined in the three months to December after shrinking 0.10% in the preceding period according to flash data from Eurostat. GDP in Germany, which is the largest economy in Europe, contracted by 0.30% in the final quarter while France flatlined. Offsetting this was a 0.20% growth in Italy, 0.60% in Spain, and a 0.80% reading from Portugal. Contrary to the underwhelming GDP readings, employment in the Eurozone increased by an annualised 1.30% in the fourth quarter, above market estimates of 1.10%. Further encouraging news came in the form of a 2.60% increase in industrial production. “High interest rates, low foreign demand, and geopolitical tensions are some of the key factors hampering Eurozone growth, which will bring the European Central Bank (ECB) under more pressure to bring down borrowing costs,” Eurostat added. The pan-European STOXX 600 rose by 0.50%, the FTSE 100 and CAC 40 advanced 0.70%, while the German DAX added 0.68%.

Wall Street finished higher on Wednesday, following Tuesday's sell-off as higher-than-expected US inflation data lowered expectations that the Federal Reserve will soon cut interest rates. “The odds for a 25bps cut in the fed funds rate in May dropped to about 35% and those for June now stand at nearly 51%,” Trading Economics added. For the day the S&P 500 added 0.90%, the Dow Jones gained 144 points and the Nasdaq advanced 1.30%.

Chinese markets together with several major Asia-Pacific financial markets remain closed for the week in observance of the Lunar New Year.

The FTSE/JSE All Share Index fell for the second consecutive session on Wednesday as weakness in resource-linked sectors more than offset gains in financials. However, the rand strengthened against a basket of global currencies as markets tried to recover from higher-than-expected US inflation. On the domestic front, local retail sales volumes went up by 2.70% in December 2023, following an upwardly revised 1% decrease in the previous month and above market expectations of a 0.70% decline. At 19h00 the rand had strengthened 0.24% to trade at R19.06/$.
Brent crude shed more than 1% to trade below $82 per barrel at 18h50 local time, after the EIA reported a spike of over 12 million barrels in US crude oil stocks last week, exceeding market estimates of a 2.56 million increase. “On a positive note, the latest OPEC report projected an increase in global oil demand through 2024 and 2025, in contrast to more conservative estimates from other sources,” Trading Economics added. Gold remained unchanged at $1 991.14/oz, while platinum rose 3.21% to $897.38/oz at 19h00.