A series of incrementally positive factors led to a continuation of the rally in European equity markets in November 2022. Aided by the mild weather the gas price tumbled offering some hope that inflation may be close to its peak. Measures taken by consumers also helped, with German gas consumption down by 27% in October compared to the previous year, helped by efficiency measures resulting in more conservative energy usage.
At the same time EU gas storage levels moved closer to the desired levels required to see the bloc through the winter, Germany notably reached 99.5% of available storage filled. Across the Atlantic some tamer inflation figures than had been expected by the market also fanned a more optimistic market reaction and allowed expectations for a sizable rate hike to be tempered.
Further good news came in the European Commission’s autumn economic forecast where expectations for full year GDP growth were revised upwards to +3.3% from the +2.7% set in the Summer interim report. It should be noted, however, that the same report was very gloomy for 2023 where the commission sees only +0.3% GDP growth for the full year as a result of the impact inflation is likely to have on household disposable income.
Third quarter earnings reporting continued with some evidence that companies were by and large coping with the inflationary pressure and in some case slowing growth. Price/volume mix is, in many cases, now skewed toward the former suggesting the sustainability of upbeat news-flow may be limited and raises the question of what happens were inflation to begin to fall in earnest.
In China the policy of Covid-Zero continued as reflected in some fairly dire economic data including PMI’s indicating a contracting economy and both import and export growth down for the month of October. Toward month end a series of protests swept a number of cities placing some pressure on authorities to change the direction of their strict approach although uncertainty remained as to exactly what the government would do next.
