On Monday, European stock markets are expected to open mostly lower as investors digest news of surging oil prices and disappointing manufacturing activity in Asia. The DAX futures contract in Germany traded 0.4% lower, CAC 40 futures in France dropped 0.3%, while the FTSE 100 futures contract in the U.K. traded flat. European equities saw healthy gains in the first quarter, with the DAX up over 12% and the CAC 40 up over 13%, but these rewards could leave the indices more vulnerable to an economic downturn, which may have been brought closer by the tumult in the banking sector.
Data out of Asia showed that factory activity weakened in March. Japan and South Korea both saw manufacturing activity contract in March while growth in China stalled as soft overseas demand hurt output, suggesting a slowdown in the consuming western economies. Manufacturing PMI data out of the euro zone are scheduled for release later in the session.
Oil prices surged after the Organization of Petroleum Exporting Countries and allies (OPEC+) unexpectedly announced on Sunday that it will cut production by over 1 million barrels per day through to the end of 2023. Soaring oil prices could worry central banks already fretting about elevated inflation levels and force them to keep interest rates at a higher level for longer, crimping economic growth.
This may be particularly relevant in Europe where core inflation, which strips out volatile energy and food costs, accelerated to an all-time high of 5.7% in March. The European Central Bank hiked by 50 basis points last month, and President Christine Lagarde stated on Friday that underlying inflation remains “significantly too high”, suggesting the policymakers see further rate increases in the month ahead.
In the corporate sector, UBS is poised to reduce its workforce by 20-30%, the Swiss press reported Sunday, as it integrates its former rival Credit Suisse, which it acquired last month in a deal engineered by the Swiss authorities to help global financial stability. Gold futures fell 0.8% to $1,970.00/oz, while EUR/USD traded 0.4% lower at 1.0795.
