Investors assess interest rate path

Commerzbank CEO Manfred Knof discusses the bank’s outlook and the possibility of a recession.

U.K. retail sales rose by 0.6% month-on-month in October, surpassing expectations and partially recovering from a 1.5% drop in September.

The Office for National Statistics said retail sales volumes remained 0.6% lower than their pre-pandemic levels, while retail sales excluding fuel grew less than expected, highlighting consumer hesitance in the face of soaring inflation and a recession that is already underway, according to the Office for Budget Responsibility.

The OBR on Thursday projected that the U.K. will endure its sharpest fall in living standards on record over the next two years.

“With the festive season fast approaching, many people have already cut back on volume of in-store food purchases and will continue to revise food and clothing purchases as well as reining in their gift lists,” said Farah Thalji, director at consultancy Simon-Kucher & Partners.

“Though we have seen a return to in-store shopping over the last several weeks, both in-store and online shopping outlets will be hard pressed to get consumers to part with their cash as discretionary income looks set to shrink even more.”

– Elliot Smith

Austrian utility Verbund gained 8% in early trade to lead the Stoxx 600, while French commercial real estate company Unibail-Rodamco-Westfield fell 4% to the bottom of the index.

St. Louis Federal Reserve President James Bullard’s language Thursday hurt sentiment among investors hoping to see the central bank pull back on interest rate hikes.

He said the Fed still has a work to do before inflation is under control while delivering remarks focused on the importance of using rules-based approaches when making policy. He is a voting member of the Federal Open Market Committee, which sets rates.

“Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” he said.

— Jeff Cox, Alex Harring

U.K. Finance Minister Jeremy Hunt on Thursday unveiled a sweeping £55 billion ($66 billion) fiscal tightening plan including a slew of tax rises and spending cuts as he attempted to plug a sizeable hole in the country’s public finances.

The planned £30 billion in spending cuts and £25 billion in tax hikes come even as the independent Office for Budget Responsibility (OBR) confirmed that the U.K. economy is now in recession and set to contract by 1.4% next year.

The OBR also said the U.K. will suffer its largest fall in living standards since records began, erasing almost a decade of real household disposable income growth by 2024.

– Elliot Smith

Britain’s FTSE 100 is expected to rise by around 14 points to 7,361, Germany’s DAX is set to add around 55 points to 14,321 and France’s CAC 40 is seen climbing around 43 points to 6,619.

Chip stocks, once a hot favorite among investors, are doing poorly this year.

But BofA says that despite consumer demand remaining under pressure, the “bull case for semis is also compelling.”

Semiconductor sales could rebound in the second half of 2023, BofA predicted.

Here are some themes that chip stocks could ride on, says the bank, which also picks names to buy.

CNBC Pro subscribers can read more here.

— Weizhen Tan