European stock futures edge higher; German PPI, U.K. retail sales in focus

By Peter Nurse 

Investing.com - European stock markets are expected to open higher Friday, with investors attempting to maintain January’s positive tone amid concerns about slowing economic growth and tight monetary policy.

At 02:00 ET (07:00 GMT), the DAX futures contract in Germany traded 0.4% higher, CAC 40 futures in France climbed 0.8%, while the FTSE 100 futures contract in the U.K. rose 0.5%.

European stocks have had a strong start to the year, with Germany’s DAX up over 7% year-to-date, helped by hopes that the expected economic slowdown in 2023 will not be as severe as previously feared.

However, these gains remain tenuous, with European Central Bank President Christine Lagarde warning, at the World Economic Forum in Davos, Switzerland on Thursday, that inflation figures remained "way too high", reiterating the need for aggressive monetary policy decisions. 

Additionally, ECB officials were divided over whether to raise interest rates by 50 or 75 basis points in December, according to minutes from the ECB's policy meeting last month.

The central bank eventually settled on hiking its deposit rate by 50 basis points, edging down slightly from three straight larger 75 basis-point increases rolled out earlier in 2022. 

This tightening has had an impact on German producer prices, which fell 0.4% on the month in December, an annual increase of 21.6%, but this was not as big a reduction as expected. 

The Bank of England also hiked by 50 basis points in December, having lifted interest rates by a combined 325 basis points in 2022 alone, to their highest since late 2008.

This resulted in disappointing news for retailers over the festive period, as U.K. retail sales fell 1% on the month in December, an annual drop of 5.8% as the monetary tightening and the cost of living crisis weighed on discretionary spending.

In corporate news, Ericsson (ST:ERICb) is likely to be in the spotlight after the Swedish telecommunications company reported fourth-quarter core earnings that missed expectations for the third quarter in a row, as sales of 5G equipment slowed in high-margin markets such as the United States.

Oil prices rose Friday, on course for a second straight positive week, on continued optimism that the brightening outlook for the Chinese economy will result in increased demand from the world’s largest crude importer.

Earlier this week, in their monthly reports, both the Organization of Petroleum Exporting Countries and the International Energy Agency forecast that a Chinese economic recovery will spur record-high crude demand in 2023. 

This confidence has helped the market look past data showing a bigger-than-expected build in U.S. inventories, after the Energy Information Administration reported an increase of over 8 million barrels on Thursday.

By 02:00 ET, U.S. crude futures traded 0.4% higher at $80.94 a barrel, while the Brent contract rose 0.4% to $86.48. Both closed 1% higher on Thursday, near their highest closing levels since the start of December. 

Additionally, gold futures rose 0.3% to $1,929.25/oz, while EUR/USD traded 0.1% higher at 1.0832.