Eurozone Inflation Soars to 7.5%, Raising Pressure on ECB
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The eurozone’s inflation rate jumped to another record high in March as Russia’s invasion of Ukraine pushed energy and food prices higher, increasing pressure on the European Central Bank to raise its key interest rate. Russia accounts for around 40% of the European Union’s imports of natural gas, a key source of energy for the bloc. It also supplies around a quarter of the bloc’s oil imports. The European Union’s statistics agency on Friday said consumer prices were 7.5% higher in March than a year earlier, a jump from the 5.9% rate of inflation recorded in February. It was the fifth straight month the inflation rate hit a new high in a data series that goes back to the start of 1997, two years before the euro was launched. National figures suggest that the current rate of inflation could be even higher. Germany’s measure of inflation for March was the highest since 1981, while Spain’s was the highest since May 1985. Much of the pickup in inflation has been driven by energy prices, which were 44.7% higher than a year earlier, having been 32% higher in February. Food-price inflation also picked up, to 5% in March from 4.2% in February. Russia’s invasion of Ukraine also means economic growth should be weaker than the ECB had expected at the start of the year, largely because high energy and food bills will reduce the amounts households can spend on other goods and services.
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On Friday, the SMI gained 0.1 per cent to 12,179 points. Among the 20 SMI stocks, there were ten price losers and ten price winners. 29.08 (previously: 44.93) million shares were traded. Bank stocks benefited from rising market interest rates. Meanwhile, Credit Suisse confirmed its Outperform rating for UBS and Julius Baer and raised its price targets slightly. UBS gained 0.4 per cent, Credit Suisse 1.3 per cent and Julius Baer 0.7 per cent. Pharmaceutical stocks Novartis (-0.8%) and Roche (+1.3%) were mixed. In the USA, the House of Representatives approved a bill on the previous evening that would limit the insulin expenses of diabetics to 35 dollars per month. This would eliminate an important source of income for pharmaceutical companies, as until now US diabetics have had to spend hundreds of dollars per month on it. Swisscom paid a dividend of 22 francs. The share held up quite well with a minus of 17 francs (-3.1%). Logitech shares continued their weakness and lost another 3.4 per cent. During the past twelve months, the stock has gone down by about 30 per cent, while the SMI has gained 10 per cent.
European rose and oil prices fell below $100 a barrel. However, high inflation figures in the euro zone and the continuing war in Ukraine limited gains. The Stoxx Europe 600 index rose 0.5% to 458.3 points. The CAC 40 and SBF 120 rose by 0.4% and 0.3%, respectively. The DAX 40 in Frankfurt gained 0.2% and the FTSE 100 in London gained 0.3%. For the week, the Stoxx Europe 600 gained 1.1%. In the eurozone, manufacturing growth fell more than expected in March as geopolitical tensions weighed on demand, according to final data released Friday by S&P Global. Inflation hit a record high of 7.5% year-on-year in March, according to data released by Eurostat. Sodexo shares fell 9.5% on expectations that growth for 2022 is likely to fall after the French food-services group said it would meet only the bottom of a targeted range. Groupe Bolloré (+2.5%) announced that it had signed the sale of its subsidiary Bolloré Africa Logistics to the shipping company MSC for €5.7bn, including debt. Renault gained 0.8%. Although its new car registrations in France fell by 15.1% year-on-year in March, the carmaker performed better than the market, which fell by 19.5%, and then its rival Stellantis (-0.1%), which saw its sales fall by 29.6% last month. Sanofi (+1.8%) presented at an investor day the demerger of its active ingredient’s unit Euroapi. The transaction will take the form of a distribution of 58% of Euroapi's capital to Sanofi shareholders, in the form of a dividend in kind. This exceptional dividend will be submitted to Sanofi's shareholders for approval at the ordinary and extraordinary general meeting on 3 May 2022. The distribution ratio will be one Euroapi share for 23 Sanofi shares.
U.S. stocks edged higher Friday, buoyed by a solid employment report that showed the country’s jobless rate returning to prepandemic levels. The Dow Jones Industrial Average rose 139.92 points, or 0.4%, to 34818.27, while the S&P 500 climbed 15.45 points, or 0.3%, to 4545.86 and the Nasdaq Composite added 40.98 points, or 0.3%, to 14261.50. All three indexes started the day higher, edged lower in midday trading as yields on government bonds surged, then climbed again to end the day in the green. The wobbly trading session came a day after the S&P 500 closed out its biggest quarterly decline since the start of 2020, falling about 5% for the first three months of the year. The benchmark stocks gauge ended the week up less than 0.1%. Employers added 431,000 jobs in March, marking 11 straight monthly gains above 400,000, the longest such stretch of growth in records dating back to 1939. The unemployment rate fell to 3.6% from 3.8%, quickly approaching the February 2020 prepandemic rate of 3.5%, which was a 50-year low. Angst about the economic outlook is one reason why stocks have had a rocky start to 2022. Investors are parsing fast-moving developments on the battlefield in Ukraine and their effects on the world economy and financial system. Of particular concern is the rise in commodity prices fueling inflation. The rally in prices for oil, grains and metals has added to expectations that the Fed will end years of easy monetary policy that propelled stocks higher. For the Fed, a key factor in deciding how fast to raise rates is the state of the labor market. In corporate news, GameStop shares gave up their early gains to end the day down $1.58, or 1%, at $165 after the videogame retailer said late Thursday that it would request shareholder approval to increase its share count to enable a stock split. Dell Technologies edged down $1.39, or 2.8%, to $48.80 after analysts at Goldman Sachs cut their target price for the stock.
In Asia, major indexes show a mixed trend at the beginning of the week. There is no trading on the Shanghai stock exchange on Monday and Tuesday due to Tomb Sweeping Day. The Hang Seng Index rose by 1.2 per cent in Hong Kong. Shares of Alibaba and Bilibili are up 2.1 and 10 per cent respectively. The Nikkei-225 in Tokyo gains 0.1 per cent. The Kospi in Seoul recovers from initial losses and increases by 0.3 per cent.
U.S. government bonds climbed Friday, aided by a strong jobs report, after a burst of quarter-end buying had driven them lower in recent sessions. The yield on the two-year Treasury note closed above the one of the 10-year note for the first time since 2019. In that situation, the yield curve is said to be inverted, something that is often viewed as a predictor of recessions. The yield on benchmark 10-year note settled at 2.374% from 2.324% Thursday. They have climbed for five of the past seven quarters as investors prepare for the Federal Reserve to keep raising interest rates to quell inflation. Two-year yields, which are more sensitive to expectations of short-term interest rates, rose to 2.430%.
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