(CercleFinance.com) – The CAC40 is continuing the rebound that began on July 6 and then July 14 (at 5,875): the index ended the week on a high at around 6,216 Pts, on an overall weekly gain of around +3%.
Wall Street is hesitant: the S&P500 erases its +0.3% initial rise (it clings to ‘4,000’), the Dow Jones is stable and the Nasdaq remains close to 12,000 despite Snap’s -38% plunge which revises its expectations downwards.
US T-Bonds eased -13Pts to 2.79% as US private sector activity contracted in July for the first time in 26 months, according to S&P Global’s composite PMI, which shows at 47.5 in flash estimate, after 52.3 for the month of June.
‘The turnaround was driven by a sharp drop in activity in services, although manufacturing output also fell marginally, for the first time in more than two years’, say the investigators.
Given the bad figures that follow one another on both sides of the Atlantic, the explanation for the rise of the day in Europe does not lie in the publication of a good PMI index since the recession is confirmed in the euro zone : The ‘flash S&P Global’ composite PMI came in at 49.4 in July, compared to 52 the previous month, thus falling back below the 50 mark, indicating a first contraction in economic activity in the region since February 2021.
‘Concerns about weakening demand, the energy crisis, supply shortages and the level of inflation have dented the outlook for activity and led to a slowdown in job creation’, underlines S&P Overall.
It was in Germany that the decline in overall activity was most marked, with the local PMI index falling to 48 and thus posting its weakest level since June 2020. Growth slowed sharply in France and l activity fell back very slightly elsewhere.
The +50Pts rise in ECB rates is, given the context, a great first: the ECB yesterday ended a decade of negative rates by opting for a resolute increase in the cost of money in response to the constant increase in risks inflation in the euro area.
The institution’s monetary policy statement and the press conference given by Christine Lagarde, its president, have also reinforced expectations of further rate hikes by the end of the year.
“The deterioration of the economic situation over the next few months could, however, lead to an early reduction in the tightening cycle,” tempers Dave Chappell, senior manager of the government bond market at Columbia Threadneedle Investments.
Investors have especially retained the creation of the new anti-fragmentation tool called ‘PTI’, intended to ensure the proper transmission of the monetary orientation in all the countries of the euro zone.
In an unprecedented combination of circumstances, the collapse of Italy’s coalition government and the resignation of its leader Mario Draghi led to a sharp widening of yield spreads between Italy and German Bunds.
The good surprise of the day is the spectacular easing of rates in Europe with -20Pts on our OATs towards 1.62%, -21Pts on Bunds towards 1.026%… and -20Pts on Italian BTPs towards 3 .41%.
Note that for the Bunds and our OATs, quarterly lows have been sunk, which suggests an additional easing of yields.
But is this return to favor of ‘risk-free’ investments such good news from the point of view of macroeconomic expectations?
On the foreign exchange market, the euro recovered slightly, towards $1.0230, but lost ground against the Swiss Franc.
The barrel of oil recovered +1% towards $105 although Russia resumed its gas deliveries to Germany via Nordstream-1.
Copyright © 2022 CercleFinance.com. All rights reserved.
Did you like this article ? Share it with your friends with the buttons below.
