European stocks closed with modest gains on Friday, as weaker-than-expected U.S. inflation data offset losses in sportswear companies and China-exposed stocks ahead of the Christmas holiday. The Stoxx 600 index rose by 0.1%, achieving gains for the sixth consecutive week, marking a streak not seen since December 2022. Nevertheless, trading volumes were below average as traders prepared to take a break with the holiday season approaching. The European market will close next Monday in observance of Christmas.
Investors expressed relief from data showing that U.S. prices fell in November for the first time in over three and a half years, which brought the annual inflation rate down to below three percent and bolstered financial market expectations regarding the Federal Reserve's decision to cut interest rates in March. Traders are also betting on the European Central Bank reducing interest rates early next year, despite efforts by policymakers to manage those expectations.
Stewart Cole, chief macroeconomist at Equity Capital, stated, "We started 2023 on a very pessimistic note, with ongoing inflation... and the European Central Bank's tight policy... coming out of winter with concerns about European energy supplies and whether the EU is heading for a deep recession." He added, "However, throughout 2023, things have not been as bad as we feared. We have largely triumphed in the battle against the Consumer Price Index, and if the European Central Bank can start cutting rates next year, we hope that the recession will not be severe."
At the same time, the ripple effect of Chinese regulators imposing rules aimed at curbing spending on video games in global markets was noted. The Dutch technology company Prosus, which has a stake in Chinese gaming company Tencent, saw its shares plummet by 13.4%, marking its largest percentage drop in over a year. French video game developer Ubisoft's shares fell by 1.5%.
Sportswear companies were a burden on European stocks after U.S. giant Nike lowered its annual sales forecasts, largely attributing this to cautious consumer spending. German company Adidas saw a 5.3% drop in its shares, with German rival Puma down 7.2%, while U.K.-listed JD Sports dropped 5.1%.
The Stoxx 600 index is set to end 2023 up by 12.4% amid rising expectations of an interest rate cut following evidence of slowing inflation and economic growth. Eurozone data showed slightly slowed GDP growth in Spain in the third quarter, while another set of data indicated a 10.2% decline in residential property prices in Germany in the third quarter, another grim sign for the real estate sector. Shares of drug company Argenx rose by 12.8% after a 38% decline over two days following the failure of an autoimmune drug in a study testing it on patients with two skin conditions.
