The Nordic markets were the best performing markets in Europe, according to the SalomonSmithBarney Br...
The BMI UK advanced 5.98% in December, led by small caps. Economic activity continued to expand moderately, with few inflationary effects. GDP expanded by an annual rate of 1.9% through the third quarter and unemployment fell to 4.1%, a 19-year low.
Although retail prices, excluding mortgage interest, rose 2.2% year on year in November - below the Bank of England's (BoE) 2.5% ceiling - Chancellor Gordon Brown and Sushil Wadhwani, a member of the Monetary Policy Committee, each publicly indicated support for pre-emptive increases in overnight lending rates. However, Wadhwani had said earlier that the unemployment rate could continue to decline without igniting higher inflation.
The BoE left lending rates unchanged at 5.5% at its December meeting, but indicated that it favours an increase in early 2000. The industrial electronics industry outperformed other industries, with a 26.28% gain for the month. During the fourth quarter, the BMI UK rose 14.06%; for calendar 1999 it increased 21.26%.
The BMI France rose 10.39% in December. Small caps outperformed large caps. The economy continued to set the pace for the larger euro zone countries, with third-quarter gross domestic product expanding 3% year on year, and unemployment falling to 10.8% in November.
Consumer prices remained stable, rising only 1% year on year in November, among the lowest in the euro zone. The best performing sector for the month was media & agencies, which gained 44.79%. During the fourth quarter, the BMI France advanced 27.86% and for the year it rose 55.58%.
The BMI Germany climbed 15.61% in December. The economy showed signs of relative improvement. Third-quarter gross domestic product expanded at an 1.3% annual rate. The euro, which depreciated 0.45% against the dollar, aided exports. The strength of Germany's largest trading partner, France, also helped. Overall, exports rose 5% in the third quarter year on year.
Inflationary pressures, however, appear to be mounting. Consumer prices rose 1% in November year on year and preliminary data indicated that the rate increased to 1.1% in December, supporting the consensus view that the European Central Bank will increase lending rates early in 2000.
November wholesale prices jumped 3.2% and import prices surged 5.9% year on year, the fastest rate of increase since 1990. The capital spending sector rose 29.53%, outperforming all other sectors. For the fourth quarter, the BMI Germany increased 30.39%, and for calendar 1999, it gained 39.02%.
The BMI Italy soared 16.67% in December. Small cap stocks dominated the month. Economic data released that month indicated the economy continued to expand, with some inflationary effects.
Third-quarter GDP expanded 1.2% year on year, the fastest growth rate in two years, paced by exports which surged 3.8%. Exports to the Asia Pacific region and Eastern Europe saw the highest increases.
The economy's pace threatened to push inflation above the ECB's 2% ceiling. Based on preliminary data, consumer prices rose 2.1% in December year on year, leading to speculation the ECB will raise overnight lending rates.
Unemployment fell to 11% in November, although the rate remained among the highest in the euro zone. The 51.28% jump in media & agencies stocks outperformed all other industries for the month. During the fourth quarter, the BMI Italy advanced 23.36% and for the year it increased 24.77%.
The BMI Spain rose 7.39% in December. Large caps outperformed smaller ones. The economy continued to expand vigorously, with some inflationary pressures. GDP expanded 3.7% year on year in the third quarter, the highest rate of growth among the larger euro zone economies.
Consumer prices rose at a 2.7% annual rate through November. Unemployment rose slightly in November to 9.84% and remained among the highest in the euro zone. Office equipment stocks jumped 47.66% during the month, leading all industries. In the fourth quarter, the BMI Spain advanced 24.18%; for the year it rose 24.34%.
Susan Fagg is analyst, European index research team and Patrick Kerr is analyst, US equity index research team at SalomonSmithBarney
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