Eurozone Inflation Hits Fresh High as More Energy Sanctions Loom
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Investors' worries were cemented by the latest eurozone inflation data, with consumer prices rising to a record 8.1% in May with economists expecting the eurozone inflation to continue its upward trend in the coming months, as energy and food prices rise due to Russia's war in Ukraine. A worsening of supply-chain disruptions due to the conflict and Chinese lockdowns is putting additional upward pressure on inflation. The data from the European Union's statistics agency marked a sharp acceleration from the 7.4% rate of inflation recorded in both April and March. Consumer prices rose at the fastest pace since records began at the start of 1997. Germany's statistics agency said inflation in the eurozone's largest member hadn't been this high since late 1973 and early 1974, amid a severe shortage of oil. Energy prices in May were 39.2% higher than a year earlier. Food prices also rose at a faster pace, as did prices of manufactured goods and services. With inflation hitting records, the European Central Bank has said it will end its bond-buying program in July, and raise its key interest rate to zero by September, from minus 0.5% now. The pace of price rises has led to speculation that the ECB might accomplish that in one move of half a percentage point in July, following the Federal Reserve's May precedent. However, ECB Chief Economist Philip Lane has said two moves of a quarter-of-a-percentage point each is much more likely. "Normalization has a natural focus on moving in units of 25 basis points, " Mr. Lane told Spanish daily El Pais in an interview.
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On Tuesday, the SMI lost 1.1 per cent to 11,611 points. Among the 20 SMI stocks, there were 18 price losers and 2 price winners. 70.62 (previously: 27.86) million shares were traded. Credit Suisse (CS Group) fell by 5.1 per cent. On the trading floor, reference was made to a Reuters report that the Swiss were looking into the option of a capital increase, among other things, to strengthen its balance sheet. However, a spokeswoman for the bank said there were no such plans. The share of competitor UBS slipped by 1.3 per cent. Givaudan (-3.7%) also declined sharply after the Dutch chemical group DSM plans to merge with the Swiss fragrance and flavour manufacturer Firmenich. This is likely to intensify the competitive environment for Givaudan. Looking at the index heavyweights, Nestle held up comparatively well. The share closed almost unchanged. Roche and Novartis decreased by 1.3 and 0.5 per cent respectively. Logitech led the SMI with a gain of 0.6 per cent. U-Blox made a move up 18.4 per cent after the company raised its outlook.
European stocks were mostly lower Tuesday, as surging oil prices heightened fears around inflation and raised further questions over how higher prices could be reined in without dragging the global economy into recession. In Paris, the CAC 40 and the SBF 120 gave up 1.4% each. In Frankfurt, the DAX 40 was down 1.3%, while in London the FTSE 100 was almost flat (-0.08%). The environmental services group Derichebourg (-3.7%) crossed the thresholds of 20% of the capital and voting rights of Elior (-1.14%) on 24 May, according to a declaration sent to the Autorité des marchés financiers (AMF). On that date, Derichebourg held 20.57% of the capital and voting rights of the catering group. Furniture and home furnishings retailer Maisons du Monde dropped 5.3%, hurt by a recommendation downgrade from Citi, which revised its advice to "neutral" on the stock from "buy" previously, while reducing its price target to €14 from €24. Dutch company DSM (+8% in Amsterdam) is to merge with Swiss fragrance and flavour manufacturer Firmenich in a deal involving an enterprise value of €21.6bn, excluding DSM's materials business which is to be sold. DSM, which specialises in health, nutrition and biosciences, said that following the merger, its shareholders would own a total of 65.5% of the new entity, named DSM-Firmenich, while Firmenich shareholders would own the remainder. German chemical company Lanxess (+11.2% in Frankfurt) announced the acquisition, together with private equity firm Advent International, of DSM's engineered materials business for around €3.7bn. As part of the deal, Lanxess and Advent will create a new joint venture specialising in performance plastics. Anglo-Dutch consumer goods manufacturer Unilever (+9.4% in London) has appointed activist investor Nelson Peltz to its board of directors, effective 20 July. Nelson Peltz runs the hedge fund Trian Fund Management, which holds about 1.5% of Unilever's capital.
U.S. stocks fell on Tuesday, ending the month on a downbeat note after last week’s rally. The S&P 500 lost 26.09 points, or 0.6%, to close at 4132.15, resuming a downward trajectory after it snapped a seven-week losing streak last week. The Dow Jones Industrial Average fell 222.84 on Tuesday, or 0.7%, to 32990.12, in the first session of the week after markets reopened from the Memorial Day holiday. Both the S&P and the Dow were roughly flat for the month. The Nasdaq Composite declined 49.74, or 0.4%, to 12081.39. The technology-heavy index dropped 2.1% in May. Many traders remain worried that the Federal Reserve’s plans to raise interest rates aggressively could tip the U.S. economy into a recession. Meanwhile, concerns about an economic slowdown in China and sustained supply-chain disruptions due to the pandemic and the war in Ukraine have continued to weigh on investors’ minds. New survey data released Tuesday showed U.S. consumer confidence declined slightly in May from the previous months. U.S.-traded shares of Unilever surged $4.35, or 9.9%, to $48.33 after the consumer-goods company said it would add activist investor Nelson Peltz to its board and disclosed his fund now holds a 1.5% stake. Qualcomm (+2.5%) intends to take a stake in Arm as part of the British chipmaker's upcoming IPO and create a consortium that would maintain the group's neutrality in the highly competitive semiconductor market, the US semiconductor maker's chief executive Cristiano Amon told the Financial Times in an interview. Norwegian Air Shuttle announced on Monday that it had signed an agreement with Boeing (-0.6%) to buy 50 737 MAX 8 aircraft. Spirit Airlines shares climbed 2% after the influential Institutional Shareholder Services recommended that the US airline's shareholders reject Frontier Group's takeover bid (+2.8%). Jet Blue, which made a competing bid that was rejected by Spirit's board, fell 0.9%.
Stock market trading in East Asia was dominated by gains in Tokyo and losses in Hong Kong on Wednesday. In Shanghai, on the other hand, the index barely moves, while business in South Korea is at a standstill due to the national election day. The Nikkei index in Tokyo rises by 0.4 per cent to 27,400 points.
Yields on 2- and 10-year U.S. treasurys got a lift on Tuesday from a hawkish speech by a Federal Reserve official over the Memorial Day holiday, but still finished the month lower amid concerns about the growth outlook. U.S. financial markets were closed Monday because of the holiday. The 10-year Treasury note jumped 11 basis points to 2.86%. The two-year bond gained 7 basis points to 2.569%.
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