Cac 40: The Fed heads for a new twist to reduce inflation, the stock market goes off the rails

(BFM Bourse) – Following the bright red close of US indices, the Paris market began to fall again on Wednesday, penalized by restrictive comments from a Fed official, looming new sanctions against Russia and the growing uncertainty about the result of the presidential elections in France.

Down slightly at the open of trading on Wednesday, the day after a 1.28% drop, the ACC 40 extended its initial losses in the morning and fell 1.81% to 6,525 points around 1:20 p.m., a level that would correspond to the low of 3 weeks at the close. “There are too many uncertainties in the market”, summarize Saxo Bank analysts in their morning note. Investors are especially concerned about “the imminence of new sanctions against Moscow that could include, for the first time, an energy component,” says John Plassard, deputy director of investments at Mirabaud. “The more ‘hawkish’ tone of certain members of the Fed is also an argument that explains the trend of the day,” he adds.

On Wall Street on Tuesday, the session was effectively “dominated by comments from Fed Governor Lael Brainard, who set the stock and bond markets on fire with very dovish comments,” notes Jeffrey Halley, an analyst at Oanda. “Lael Brainard hinted that a reduction in the Fed’s balance sheet, called quantitative tightening, could begin next month and at a much faster pace than previous efforts. In addition, he hinted that a 0.50% rate hike was on the cards.” table as the The Fed was prepared to take “strong action” to contain inflationary pressures. What makes tonight’s comments so important is that Ms. Brainard is often one of the most “patient” (accommodating) members of the FOMC (the “Federalopened market” of the Fed). If it has gone from the field of “doves” to that of “hawks” (restrictive), the markets must take note and that is what they have done”, develops the expert.

Markets are also keeping an eye on the introduction of additional sanctions against Russia, in the context of the war in Ukraine. The European Commission proposed on Tuesday that the 27 countries of the Union stop buying Russian coal, which represents 45% of EU imports, and that they close their ports to ships operated by Russians. The European Union will have to take sanctions on Russian oil and gas “sooner or later”, European Council President Charles Michel also declared on Wednesday.

The narrowing gap between Macron and Le Pen

The trend in Paris on Wednesday is also weighed down by slight but growing fears about the outcome of the French presidential election, the first round of which takes place on Sunday. The market’s negative stance “thus reflects the integration of risk premiums”, with the gap narrowing in the second round of polls between the two favorites Emmanuel Macron and Marine Le Pen, analysts at Banque Postale AM ​​believe.

Although macroeconomic uncertainties are increasing, absolute calm still reigns at the microeconomic level, a few days after the launch (Tuesday), for LVMHof a new season of quarterly results, where the operators will scrutinize in particular the prospects of the flagships of the French coast in a degraded context.

Meanwhile, and like the day before, we find several automotive and banking stocks among the biggest decliners in the midday flagship index (-4.7% for Stellantis-3.6% for General Partnership-3.3% for BNP-3% for Renault). Saint Gobain (-4.2%) and STMicro (-3.5%) also accelerated their fall. And on the other hand, rare are the values ​​to float (+2.6% for Carrefour, +1.7% for Eurofins).

EDF, for its part, sells 2.8% after having completed its capital increase for more than 3,100 million euros -including 2,700 million contributed by the State- with an operation oversubscribed by almost 130%.

Among the strange news of the day, the medical specialist in diagnostic Scientific Eurobium confirms its dimension change observed in 2020 with the publication of annual results close to those of the previous year, but below 5.6%.

As for oil, prices rose slightly (+1.1% to 107.2 dollars for the Brent) as the EU prepares to break the “energy taboo” with its upcoming embargo on Russian coal. In the foreign exchange market, the single currency temporarily put an end to the violent fall of the last sessions against the dollar (more than 2% sold in the last 4 days) and thus trades at 1.0907 dollars, that is, a level without changes from the previous day.

Quentin Soubranne – ©2022 BFM Bourse

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