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USA And European Equity

The Dow Jones erased early losses and closed 170 points higher while the S&P 500 added 0.6% on Friday with support from energy shares, as investors continued to digest the latest economic data for hints on the Federal Reserve’s path. The core PCE price index, the Fed’s preferred inflation gauge, slowed more than the FOMC had forecasted in its projections last week. Meanwhile, personal spending edged higher from the prior month and durable goods orders shrank the most in two years. Still, concerns that the Fed will maintain its hawkish guidance for next year persisted after GDP growth and quarterly PCE inflation figures were revised higher yesterday, pressuring the tech-heavy Nasdaq to underperform and close marginally above the flatline. So far in December, the Dow Jones is down 4%, the S&P 500 shed 5.9%, and the Nasdaq tumbled 8.7%, with the three major averages on track for their worst yearly performance since 2008.

European equity markets closed roughly flat in choppy trading on Friday, after losing nearly 1% in the previous session, as traders continue to worry that interest rates will need to stay elevated for a longer period, which could hurt the economy even further. Gains across basic materials, real estate, industrials and energy were offset by losses in consumer, technology and utilities shares.

The FTSE 100 closed little changed in a shortened session on Friday, after a 0.4% loss the day before with the energy sector leading gains. Also, auto stocks added 0.4% after the latest data showed UK car production rose 5.7% in November, the second straight month of increases. In corporate headlines, Hurricane Energy Plc rose 2.6% after activist investor Crystal Amber Fund sent a notice to the group to convene a general meeting proposing leadership change. On the week, the London index advanced almost 2%.

The benchmark CAC 40 index closed 0.2% lower at 6,500 on Friday, underperforming other European bourses with pressure from consumer discretionary stocks as investors digested a slower PCE price index in the US. Paris’s heavyweight luxury brands closed sharply lower amid further Covid concerns in the sector’s top consumer China, with LVMH and Hermes sliding 1.5% each. Authorities in Beijing stated that the country may have registered around 37 million Covid cases in one day, extending the economy’s period of inactivity and driving demand for luxury goods to decline. Still, the CAC 40 index added nearly 1% on the week. On the data front, producer prices in France accelerated by 1.2% month-over-month in November, after contracting by 0.2% in the previous month.

The FTSE MIB closed a choppy, low-volume session 0.2% higher at 23,870 on Friday, notching a 0.8% jump on the week with support from energy, utility, and financial shares ahead of the Italian government’s confidence vote on the expansionary 2023 budget. While remaining within the EU’s recovery framework, the budget’s expansion will widen the next year’s deficit to 4.5% of GDP from the 3.4% budget set in September, allocating more than EUR 21 billion to aid households and businesses with high energy bills. Utilities extended their gains and closed in the green, as the extended downturn for TTF gas prices reduced the likelihood of the EU’s price cap being triggered. Banks also closed sharply higher. Banco BPM added 0.2% following news it finalized the long-term non-life insurance deal with Credit Agricole.

The IBEX 35 closed at 8271 on Friday, little changed from the previous session, in line with its European peers as the market remained cautious ahead of the holiday season amidst concerns of further monetary tightening and its impact on the economy. Domestically, producer prices in Spain rose at a slower 20.7% in November 2022, the least since August 2021. Meanwhile, the country's GDP growth was revised lower to show a meager 0.1% expansion in Q3. On the week, the Spanish index rose nearly 2%, recovering from two consecutive weeks of losses. The IBEX 35 will be closed on December 26th.

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