11.01.202323:51 Forex Analysis & Reviews: European markets higher as US and Asian markets advance

Major Western European indexes were trading sharply higher on Wednesday after falling the day before. European markets advanced after a spectacular rise in US and Asian stock markets. Mining stocks rallied on strong commodity prices.

The STOXX Europe 600 gained 0.44% and reached 447.64 points.

The French CAC 40 was up 0.35%, German DAX climbed 0.33% and the British FTSE 100 gained 0.41%. The day before, the FTSE 100 closed the trading session in the red for the first time this year.

Biggest gainers and losers

Glencore, a Swiss supplier of commodities and rare-earth materials, and Rio Tinto, an Australian-British metals and mining company, rose more than 1%. On Wednesday, copper prices approached six-month highs. Metal prices jumped on brightening demand outlook in China.

Direct Line, a British insurance company specializing in auto and property insurance, plummeted 26.6%. The company announced that it no longer expects to declare a final dividend for 2022 after a significant rise in claims. Following this news, shares of Direct Line's main competitor, Admiral, fell by 15%.

British sports and fashion retailer JD Sports soared 5.7%. The company said its total revenue was up by more than 20% over the six-week period to 31 December 2022. JD Sports adjusted pretax profit for the year ended on January 28 at the upper end of analysts' projections.

Shares of British supermarket chain J Sainsbury PLC sank 2.4%, despite the fact that the company also expects pretax profits for the year which will end in March, to be towards the upper end of market expectations amid high trading volume over the Christmas period.

Swiss chemical concern Sika AG dropped 3.5%. The company's revenue last year rose by 13%, thanks to a spectacular increase in revenues around the world. The final result of Sika AG was lower than analysts' forecasts.

The share price of Dutch bank ABN AMRO dropped by 2.1% due to the news that Lars Kramer, the company's CFO, will resign on April 30.

The British bank Standard Chartered PLC rose 0.2%. The day before the company said it was exploring strategic alternatives for the aviation unit.

Market sentiment

On Wednesday, European traders are building up their appetite for risk in anticipation of the US inflation report that will be released on Thursday.

According to analysts' preliminary forecasts, the country's consumer price level slowed to an annualized 6.5% in December from November's 7.1%.

The new inflation data will help traders predict the US Federal Reserve's further stance on monetary policy.

Moreover, investors analyzed the recent statements of the Fed officials. The day before, the head of the Fed Bank of San Francisco Mary Daly said that the US central bank will be forced to raise its key interest rate above 5% to fight the record level of inflation in the country.

Fed Chairman Jerome Powell spoke Tuesday night at the Swedish central bank conference, which was closely watched by traders around the world, but he did not touch on monetary policy or the outlook for the economy.

As a reminder, the Fed raised interest rates by 0.5 percentage points in December, bringing the target range for its benchmark rate to 4.25% to 4.5%. At the same time, US interest rates set by the Fed rose to their highest since 2007. In a commentary on December's meeting, Fed Chairman Jerome Powell said the US central bank would stay on course to tighten monetary policy until inflation returned to the 2% target.

According to the latest data of the largest North American financial derivatives market CME Group, more than 70% of experts expect the key interest rate in the US to increase by 0.25 percentage point in February, up to 4.5-4.75% per year.

US stock exchanges showed a strong performance the day before. Thus, on Tuesday, The Dow Jones Industrial Average index grew by 0.56%, the S&P 500 gained 0.7% and NASDAQ Composite gained 1.01%. On Wednesday, key indicators of the Asia-Pacific region also demonstrated spectacular positive values.

This week, investors continued to discuss news regarding China's easing of its extremely strict quarantine restrictions. As of January 8, the Chinese government opened its borders with Hong Kong and also canceled a mandatory quarantine for travelers arriving from abroad. At the same time, a negative coronavirus test will be required to enter the country.

In addition, Beijing authorities had previously reduced its infection monitoring level, rejecting the legal basis for the introduction of enhanced quarantine measures.

In response, some countries have tightened requirements for visitors from China. For example, the US has introduced mandatory testing for those arriving by air from China, beginning on January 5.

Traders around the world have been seriously concerned about China's "zero-Covid" policy, as Chinese restrictions have had a negative impact on the economic activity and stock markets.

At the end of November, mass protests erupted in Shanghai against strict quarantine measures of local authorities. The protesters were dispersed by local police using gas canisters.

Markets became hopeful that mass protests in Chinese cities would force local authorities to ease restrictions across the country. The latest news from China was welcomed as a positive signal that the world's second-largest economy could once again grow strongly in the future.

Previous trading session

On Tuesday, major Western European indexes closed in the red zone.

The STOXX Europe 600 fell by 0.6% to 445.71 points.

French CAC 40 lost 0.55%, German DAX decreased 0.12% and British FTSE 100 declined 0.39%.

Spie S.A., a French company specializing in the fields of electrical, mechanical and climatic engineering equipment, plummeted 5.7%.

Shares of Softcat PLC, a British provider of IT infrastructure solutions, fell by 5.1%.

British video games developer Games Workshop Group PLC dropped by 4.8%.

Shares of British Internet food delivery company Deliveroo PLC decreased by 3.8%.

Danish energy company Oersted A/S increased by 3.6%.

German multinational manufacturer of luxury vehicles and motorcycles Bayerische Motoren Werke AG (BMW AG) gained 0.6%. The company reported that its sales of electric cars more than doubled last year.

UK retail chain Tesco Plc went up by 0.4%.

Shares of British supermarket chain J Sainsbury Plc jumped by 0.9%.

British recruitment company Hays Plc plummeted by 6.9%.

French medical equipment manufacturer Orpea S.A. jumped 7.4%.

On Tuesday, European traders also analyzed economic data for countries in the region. The National Statistical Office of France Insee reported that French industrial production increased in November compared to October when it fell by a revised 2.5%. Industrial production in France grew as activity returned to normality after strikes at refineries caused a sharp fall in October's output.

Thus, industrial output rose 2.0% in November. At the same time, earlier experts had expected the index to grow by only 0.8%.

A new report from the British Retail Consortium has stated that, in the UK, retail sales grew by 6.5% during December 2022 compared to the previous year and also accelerated from a 4.1% rise in November.