Eyes turn to BoE after British GDP surprise

European stocks edge up

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UK economy grows 0.1% in November

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FTSE closer to record high

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Tesla price cuts hit European auto makers

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EYES TURN TO BOE AFTER BRITISH GDP SURPRISE (1310 GMT)

The British economy late last year held up better than expected, data released Friday showed, but, several observers warn this could mean more aggressive tightening from the Bank of England will be necessary to curtail inflation. Britain's gross domestic product rose 0.1% in November, a higher reading than any forecast in a Reuters poll of economists which had pointed to a 0.2% decline.

However, say Berenberg economists, "a less severe winter shock, especially as it seems to be stemming from more resilient demand momentum, also comes with a risk. Policymakers at the BoE may judge that significantly more tightening will be necessary to sustainably return inflation to target".

Berenberg expects a 50 basis points of further BoE interest rate increases but if the central bank does need to go further than this, the "call that the UK can start to recover from Q3 would be at risk, along with our overall calls for 2023 and 2024."

Berenberg are not alone in this point. "The MPC can’t rely on the economy as much as it thought it could to do its job for it so to speak in controlling domestic inflationary pressures, particularly those emanating from the labour market," say analysts at RBC Capital Markets.

FTSE NEARING ALL TIME HIGH (1230 GMT)

A wave of optimism after data showed the British economy unexpectedly grew in November has lifted UK blue chips, which are fast approaching an all-time high.

The FTSE 100 index is up 0.5% to 7.847 points, near its record high of 7,903 hit in 2018. Friday's advances came as data showed GDP in Britain rose 0.1% in November from October, reducing the chance the economy slipped into a technical recession in the final quarter of last year.

"Smashing through this (2018) level would give overseas investors another reason to start looking more seriously at UK stocks," says Russ Mould, investment director at AJ Bell.

Despite a gloomy broader picture for the UK economy, the energy-heavy FTSE 100 had a bumper year in 2022 as gas prices soared, bolstering energy companies performance.

“After the Brexit vote, UK stocks were off the menu for many international investors and valuations plummeted... Last year was a big turning point whereby the UK was one of the few major markets around the world not to see a big slump," Mould adds.

SOLID EURO COULD BE BAD FOR STOCKS

Even though European stocks have started 2023 with a vengeance - the STOXX 600 has risen more than 6% so far - sell side analysts are warning it might be too optimistic to expect a year of strong gains.

UBS analysts expect European equities to fall by 8% by the end of 2023 with the index falling to 410. It is currently trading at 452.

"We think the market significantly underprices downside risks", the broker says, noting that central banks keep raising rates and leading indicators are declining, putting into question a recovery scenario that seems priced in.

Europe and its stocks could also be hampered by the strength of its currency.

The broker considers the possibility of a slowdown in United States combined with European policy rates strengthening the euro, which would be a pretty murky scenario for pharmaceuticals, logistics or hardware companies, which are heavily exposed to the U.S market.

And while some see the reopening in China coming to the rescue, UBS says that the broad European market is overall still more sensitive to local and U.S. activity.

STOXX RISES TO HIGHEST LEVEL SINCE APRIL (0940 GMT)

European shares are rising supported by a wave of optimism after data showed the British economy unexpectedly grew in November.

The pan European STOXX 600 index is on track for a second consecutive weekly gain, an upbeat start to the new year, after data signalled inflation is cooling in the euro zone and the U.S., raising hopes central banks will slow the pace of their monetary policy tightening.

The STOXX 600 is up 0.5% to its highest level since late April, with the rate-sensitive tech sector leading gains up 1%.

In a sour note, the auto sector is lagging the broader market after U.S. carmaker Tesla slashed prices in U.S. and Europe. Shares in car makers Stellantis, Renault, Volkswagen are down between 3%-5%.

Investors are also awaiting earnings from big U.S. banks anticipating the European earnings season with many companies due to report their results later this month.

NO FEARS ON FRIDAY THE 13TH (0755 GMT)

Is there anything spooky about Friday the 13th?

Well, certainly not for global equity investors as they cheered U.S. inflation data that showed the Fed's aggressive rate increases are having the desired effect.

Asian stock markets advanced to hit another seven-month high and were headed for a third consecutive session of gains, while the yen also rose to multi-month highs.

European equities, perched at nine-month highs, are poised to open on a strong footing on Friday.

On the corporate front, Vodafone Group, which is looking for a new CEO, plans to shed several hundred jobs, most of which are located at its London headquarters, to rein in costs, the Financial Times reported.

British shoppers splurged at Christmas, piling their trolleys with party food, drink and clothing as they enjoyed the first holiday season free of COVID worries for three years, but retailers are bracing for a tougher 2023.

Meanwhile, the IMF is holding on to its growth outlook.

The head of the global lender said the IMF is not likely to cut its forecast for 2.7% growth in 2023, noting that a feared oil price spike had failed to materialise and labour markets remained strong.

Fed policymakers expressed relief that inflation continued easing in December and signalled that a rate-hike slowdown was coming.

In Asia, the big movement was of Japanese government bond yields breaching the central bank's new ceiling in the market's most direct challenge yet to decades of uber-easy monetary policy.

Friday is a big day for U.S. earnings. Four American banking giants are forecast to report lower quarterly profits as lenders stockpile rainy-day funds to prepare for an economic slowdown that is battering investment banking.

Key developments that could influence markets on Friday:

Economic data: UK Nov GDP, France, Spain Dec CPI (final), Euro zone Nov industrial production

U.S. economic data: University of Michigan sentiment survey Jan

U.S. results: Bank of America, Citigroup, JPMorgan, Wells Fargo, BlackRock and Delta Air Lines

Fed speakers: Minneapolis Fed President Neel Kashkari and Philadelphia Fed President Patrick Harker

EUROPEAN SHARES SEEN HIGHER AFTER UK, U.S. DATA (0750 GMT)

European futures point to a start of the day in positive territory for bourses across the region as cooling U.S. inflation raised hopes of the Federal Reserve slowing the pace of interest rate hikes, and Britain's economy unexpectedly eked out some modest growth in November.

Fed policymakers expressed their relief on easing inflation after U.S consumer prices surprisingly fell for the first time in more than 2-1/2 years in December, paving the way for the central bank to slow the pace of monetary tightening.

Gross domestic product in Britain rose 0.1% in November from October, figures from the Office for National Statistics showed on Friday, reducing the chance it slipped into a technical recession in the final quarter of last year, despite a gloomy broader picture.