European stocks rose in the first trading session of 2023 on Monday, as euro-zone manufacturing data suggested the worst was over after a year marred by recession fears as central banks hiked rates around the world.
The national STOXX 600 rose 0.8%, helped by consumer discretionary stocks. The auto and parts sectors were up 2.5% and luxury stocks like LVMH and Kering were each up about 1.5%.
“With 10-year Bund yields above 2.50%, relaxed year-end trading and a likely fall in HICP inflation raise hopes for an upbeat start to the year,” analysts at Commerzbank Research said in a statement, referring to consumer prices in the US Euro zone inflation data due later this week.
A leading indicator was data showing that the contraction in manufacturing activity in the euro zone is likely to have bottomed out as supply chains gradually recover and inflationary pressures ease, prompting a resurgence of optimism among factory managers.
The STOXX 600 ended 2022 with sharp losses, driven by aggressive central bank tightening to curb rising prices, an economic slowdown, the Russia-Ukraine conflict adding to inflationary pressures and growing concerns over COVID cases in China.
Rate-sensitive tech stocks, which were among the worst-performing stocks last year, rose 1.5% on the day despite further hawkish signals from the European Central Bank.
ECB President Christine Lagarde said wages in the euro zone were rising faster than previously thought and the central bank must prevent this from adding to already high inflation.
Bond yields in Europe’s largest economy, Germany, fell from their highest level in more than a decade as investors braced themselves for inflation data this week.
Germany’s finance minister expects inflation in Europe’s largest economy to fall to 7% this year and fall further in 2024 and beyond, but expects high energy prices to be the new normal.
The German DAX increased by 1.0%, but other European stock exchanges also got off to a good start in the year. The London and Dublin stock exchanges are closed for the New Year bank holiday.
The energy sector gained 1.3%, following firm crude oil prices.
Croatia ushered in the new year with two historic changes as the European Union’s newest member joined both the EU’s border-free Schengen zone and the single currency, the euro.