Caution on equities ahead of central bank decisions

by Claude Chendjou

PARIS (Reuters) – Wall Street is expected to fall on Tuesday and European stock markets are also in the red at mid-session, investors opting for caution ahead of the announcements this week of monetary decisions from three major central banks, including those of the US Federal Reserve (Fed) Wednesday.

Futures on New York indices signal an opening on Wall Street down 0.36% for the Dow Jones, 0.22% for the Standard & Poor’s 500 and 0.37% for the Nasdaq.

In Paris, the CAC 40 fell by 0.4% to 7,053.53 around 12:35 GMT. In Frankfurt, the Dax dropped 0.46% and in London, the FTSE contracted 0.74%.

The pan-European FTSEurofirst 300 index lost 0.66%, the EuroStoxx 50 of the euro zone 0.4% and the Stoxx 600 0.64%.

Over the whole month, the CAC 40 has gained 8.93% at this stage and the Stoxx 600 6.23%

The Fed begins a two-day monetary policy meeting on Tuesday after which it is expected to raise interest rates by 25 basis points to 4.50-4.75%. Uncertainty remains on the peak rate, currently estimated at 4.90% by the market while several officials of the American bank have recently estimated that it will have to exceed 5% to sufficiently curb inflation.

“What markets will be looking at is any rhetoric about where interest rates are going at this point, especially if central bankers suggest inflation remains a major concern and rates will need to keep rising for even longer. “said Victoria Scholar, Chief Investment Officer at Interactive Investor.

After the Fed, the European Central Bank (ECB) and the Bank of England (BoE) will in turn make their decisions on Thursday. For these two central banks, the markets expect their rates to rise by 50 basis points. Inflation figures in the euro zone, expected on Wednesday, could however challenge this scenario, with consumer prices having reaccelerated in Spain and France in January.

In addition to concerns about inflation, there are concerns about the economic situation, with Germany virtually guaranteed to enter recession in the next quarter. The eurozone economy, however, recorded unexpected growth of 0.1% in the fourth quarter and the International Monetary Fund (IMF) is a little more optimistic for 2023, expecting a rise in global GDP of 2.9% This year.

WALL STREET VALUES TO FOLLOW

Caterpillar fell 3.3% in the market after the announcement on Tuesday of a quarterly profit below expectations, the rise in production and transport costs having put pressure on the margins of the world leader in construction machinery, considered a reliable barometer of the global economy.

VALUES IN EUROPE

In the major compartments of the European rating, apart from the banks (+0.42%), all the other sectors are in the red. Basic resources (-2.05%) and new technologies (-0.79%) show among the sharpest declines, on the prospect of rising interest rates and fears of deterioration in the conjuncture.

In Paris, Societe Generale (+2.01%) is at the top of the CAC 40, while STMicroelectronics (-2.57%) is at the back of the pack.

The results of companies also animate the exchanges, with in particular UBS which gives up 2.95%, the Swiss bank having predicted an “uncertain” year on Tuesday, despite a better than expected net profit for 2022. Its competitor UniCredit, in increase of 10.77%, is driven by the announcement of a payment plan of 5.25 billion euros to shareholders based on 2022 results.

CHANGES

The dollar appreciated by 0.15% against a basket of international currencies but was heading towards a decline of 0.9% over the whole of January, the fourth consecutive month of decline.

The euro, which has gained around 1% this month, is trading at $1.083 (-0.13%), close to a nine-month high on the back of lower energy prices in the community block.

RATE

Bond yields in Europe are stable after the GDP figures in the euro zone: that of the ten-year German Bund, the benchmark for the entire region, is displayed at 2.30%.

In the United States, the yield on Treasury bonds with the same maturity fell around 1.5 points, to 3.53%, pending the Fed’s announcements.

OIL

Oil prices hit a two-week low on Tuesday ahead of further interest rate hikes and an expected status quo on production quotas from OPEC+ which meets on Wednesday.

Around 12:15 GMT, Brent fell 0.9% to 84.14 dollars a barrel, after falling in session to 83.77 dollars, the lowest since January 13. American light crude (West Texas Intermediate, WTI), which hit a low in session since January 11, at 76.70 dollars, appears at the same time down 1.05% to 77.08 dollars.

(Written by Claude Chendjou, edited by Kate Entringer)