Fall in sight in Europe, the Fed fuels concern – 04/06/2022 at 08:34


MAJOR EUROPEAN STOCK EXCHANGES ARE EXPECTED TO DECLINE

by Marc Angrand

PARIS (Reuters) – Major European stocks are expected to fall on Wednesday in the wake of Wall Street and Tokyo following the latest comments from U.S. Federal Reserve officials, reviving fears of seeing a rapid tightening of monetary policy in the United States The States weigh on growth and fuel the rise in the yield of bonds and the dollar.

Index futures suggest a drop of 0.41% for the CAC 40 in Paris, 0.17% for the Dax in Frankfurt and 0.16% for the EuroStoxx 50, while the FTSE 100 in London is expected to hardly change.

Fed Governor Lael Brainard, seen as a dovish, said on Tuesday he expected the central bank to return to a “more neutral” monetary policy by the end of this year with a combination of rate hikes and a rapid balance sheet cut.

His statements reinforced the scenario of several half-point increases in the federal funds rate (“fed funds”) in the next Fed meetings to curb inflation.

For Kristina Hooper, director of market strategy at Invesco, “it has to have a negative impact on equities because it increases the probability of a recession. The Fed, if it becomes more offensive, is going to have an increasingly difficult landing. gentle.”

Mary Daly, president of the San Francisco Fed, said for her part that she does not anticipate a recession at this stage, even if the economy could approach one.

In this context, investors will carefully study the minutes of the US central bank’s March meeting, due to be published at 18:00 GMT.

Another source of concern for investors: the impact of the new wave of the COVID-19 epidemic in China on the economy, highlighted by the fall of the Caixin index of activity in services to 42.0 in March compared to 50.2 in February.

In Europe, the first indicator of the day is little more encouraging as it shows a much sharper than expected drop (-2.2%) in industrial orders in Germany in February.

QUALIFY

US Treasury bond yields continue to rise, to their highest level since early 2019 for two-year bonds at 2.5674% (+6.3 basis points), since December 2018 for five-year bonds 2.7618% (+5.5 points) and since March 2019 for the ten-year bond 2.6069% (+6.5 points).

Lael Brainard’s talk of Fed rate hikes and balance sheet shrinking, implying a sell-off of central bank Treasuries in the coming months, only reinforces the selling tide.

In Europe, the rise is attenuated: the German ten-year bond is slightly more than one point up to 0.626% and remains below its maximum of last week.

CHANGES

The prospect of a tightening of US monetary policy also favors the appreciation of the dollar, which is at its highest level since May 2020 against a basket of benchmark currencies, gaining another 0.28% after a 0.5% jump on Tuesday.

The euro, meanwhile, suffered and fell back below $1.09 for the first time in three weeks.

A WALL STREET

The New York Stock Exchange closed sharply lower on Tuesday, pressured by technology stocks that suffered from the Fed’s comments on possible aggressive measures to control inflation.

The Dow Jones Industrial Average fell 0.8%, or 280.7 points, to 34,641.18, the Standard & Poor’s 500 lost 57.52 points (-1.26%) to 4,525.12 and the Nasdaq Composite lost 328 points. .39 points (-2.26%) to 14,204.17, its biggest percentage decline in a session for a month.

Among the heavyweights in the technology sector, sensitive to expectations of rate hikes, Apple loses 1.89% and Amazon 2.55%.

Bucking the trend, Twitter gained another 2% the day after a 27.1% jump following the announcement of the upcoming appointment to its board of directors of Elon Musk, the Tesla boss who became its first shareholder.

Futures suggest a slightly lower open for now.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index closed the day down 1.58% to 27,350.30 points, as prospects for monetary tightening in the United States weighed on investor morale.

In China, where markets were closed on Monday and Tuesday, the trend is more affected by concerns about the new wave of the COVID-19 epidemic and the contraction of services.

The Shanghai SSE Composite lost 0.19% and the CSI 300 lost 0.53%.

PETROLEUM

The oil market hesitates while waiting for firm decisions on possible new Western sanctions against Russia that could reduce world supply.

This factor, which is likely to support prices, is opposed by several downward factors, whether it is the rise in the dollar, the increase in crude oil inventories in the United States (+1.1 million barrels last week according to American Petroleum Institute cited by market sources). ) or the extension of the confinement in Shanghai.

Brent crude gained 0.42% to $107.09 a barrel and US light crude (West Texas Intermediate, WTI) 0.24% to $102.20.

(With Lewis Krauskopf in New York)

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