EU50/EUR

Despite some ups and downs, the Europe 50 or Euro Stoxx 50 remained on an upward trajectory, albeit a gradual one. The index gained more than 17% in the first nine months of 2021. However, European equities came under significant pressure in the first half of September as investors worried about the fallout from China Evergrande Group’s collapse, rising covid-19 cases, and a tightening of the ECB’s monetary policies after the central bank signalled plans to begin curtailing its bond purchases. Despite these concerns, the Europe 50 remained above the 4,000 mark.

Eurozone’s annual inflation rate stood at 3.0% in August, representing the highest rate since November 2011. This was well above the European Central Bank’s target of 2.0%. However, the bank’s policymakers reiterated that inflationary pressures seemed temporary and will ease soon. Analysts expect inflation to accelerate to 3.3% in September.

Eurozone’s retail sales contracted by 2.3% in July, after 1.8% growth in the previous month, with the sales of non-food items declining by 3.5% during the month. Analysts project a rebound in retail sales in August, with retail trade likely to grow 1.5%.

Eurozone’s annual economic growth accelerated to 14.3% in the second quarter, from a preliminary estimate of 13.6%. This was the fastest pace of expansion on record. The common bloc’s economy is expected to grow at an annual rate of 4% in the third quarter.

Industrial output grew 1.5% month-over-month in July, after recording a contraction for two consecutive periods. Experts project a 0.7% rise in industrial production in August.

During its recent meeting, the ECB held interest rates at record-low levels. However, the central bank indicated towards a possible slowdown in its base of asset purchases through the final months of the year. Analysts expect the bank to keep interest rates unchanged at its upcoming meeting.

The US NFP (non-farm payroll) report causes significant volatility in the global markets, especially for European equities. The US economy added merely 235,000 jobs in August amid the spread of Delta variant of covid-19, the weakest in seven months. Analysts project 450,000 jobs to be added in the nonfarm sector in September.

While European economy is ramping up in pace with the US and there are similar concerns in both regions (like inflation and central bank’s asset tapering), European stocks are relatively undervalued versus their American rivals. This could attract investor interest as the global economy recovers. Analysts predict a surge in cyclical industrials and ESG stocks as the European economy grows.