The Paris Stock Exchange posted a symbolic gain thanks to cautious optimism at the start of the week which promises to be the busiest of the season on the front of business publications. Wall Street is hesitant at the opening, torn between earnings expectations and fears of recession. Investors are limiting initiatives all the more since the US Federal Reserve will begin a two-day meeting of its monetary policy committee on Tuesday.
Weak trading volumes, with 1 billion euros traded on the Cac 40, heightened market volatility, with the flagship index oscillating within a margin of nearly 100 points between a decline of 0.63% and a gain by 0.69%. In the United States as in Europe, the latest PMI indicators reflect a contraction in activity, and Germany seems particularly affected.
Shortly before 4 p.m., the Bedroom 40 gained 0.23% to 6,231.01 points after a peak at 6,260.13, unprecedented since June 10. Elsewhere in Europe, the Dax of the Frankfurt Stock Exchange takes 0.16% and the FTSE Eb Milanese 0.50%. In New York, the Dow Jones gleans 0.17%, while the Nasdaq Composite is stable.
The German Ifo index at half mast
The business climate deteriorated in July across the Rhine, the index calculated by the Ifo institute having fallen by 3.6 points to 88.6, its lowest level since June 2020, weighed down by the rise in prices of energy and the fear of a gas shortage. For Jessica Hinds, Senior Economist Europe at Capital Economics, “ the message sent by the German institute Ifo is clear: the outlook is deteriorating, and rapidly. High inflation is already squeezing consumer demand and gas restrictions are looming. Germany appears to be heading for a deeper recession than most other countries in the coming months “.
At the European level, the banks’ Stoxx 600 posted the best sector performance with a gain of 1.7%, while the profits of institutions in the euro zone should benefit from the tightening of the ECB’s monetary policy. In Paris, BNP Paribas, Agricultural credit and Societe Generale earn between 1.6% and 2%. Conversely, the index associated with property values fell by 0.9%.
Market sentiment has been particularly shifting in recent weeks, shifting from fears that the economic slowdown will hurt corporate performance to hopes that lower demand will eventually dampen inflation, leading central banks return to less restrictive monetary policies. ” Equity markets cannot go down forever, but the recent ‘bear market rally’ seems to have been driven by the same attitude of crossing our fingers as the previous ones. I think a few new bad surprises could still come to test the foundations of the last low point of the market “, nuance Craig Erlam, market analyst at Oanda.
Slowdown or recession in the United States?
In the United States, the prospect of a 100 basis point hike in the Fed funds rate has receded after two of the most “hawkish” members of the FOMC, in this case Governor Christopher Waller and President of the St. Louis Fed James Bullard, indicated that they would support a hike of 75 basis points, as in June. The central bank has chosen to give priority to the fight against inflation at the risk of a slowdown in the economy, while the rise in consumer prices reached 9.1% over one year in June. As for the ECB, Martin Kazaks, a member of the board of governors, told Bloomberg that the central bank may not be done with steep rate hikes after raising them by 50 basis points.
Second-quarter US GDP figures will be released on Thursday. According to the Atlanta Fed’s GDP Now tracker, which traces expectations based on economic indicators, the market is expecting a contraction of 1.6% in the American economy, after a drop of the same magnitude in the first quarter, which would meet the definition of a recession with two consecutive quarters of contraction. However, the consensus anticipates a growth of 0.3% of the American GDP. On the Old Continent, Eurostat will unveil on Friday the first estimates of July inflation and second quarter GDP in the euro zone.
Faurecia and Plastic Omnium confirm, Eutelsat dives
On the corporate front, 175 S&P 500 companies, more than a third of the total, are due to report second-quarter results this week. The five Gafam will occupy a place of choice with in particular the first two capitalizations of Wall Street, namely Microsoft, tomorrow, and Apple, Thursday. The earnings season in the United States is proving better than expected so far as consumer spending shows resilience, while bad news is already priced in, according to strategists at UBS Gloabl Wealth Management. ” Overall earnings growth is slowing, but not sinking “, they indicate in a note.
In France, 30 components of the Cac 40 will be on deck this week, including the main capitalizations of the Paris market such as LVMH, Hermès, TotalEnergies, Sanofi, L’Oréal and Airbus.
Faurecia increased by 5.3%. Forvia, the automotive supplier born from the merger between the French group and the German Hella, confirmed its annual outlook while its half-year results suffered from the inflationary environment.
Its competitor Plastic Omnium takes 0.6% after also confirming its objectives for the 2022 financial year, while its results exceeded analysts’ forecasts in the first half. In the same sector, Renault appreciated by 2.4%.
Eutelsat fall of almost 16%. The satellite operator has confirmed that it has entered into discussions with its co-shareholders in OneWeb, with a view to a possible merger of the two companies by exchange of shares. Eutelsat already holds 23% of the capital of the British company, which is developing a high-speed Internet access service covering regions not served by terrestrial connections.
Orange wins 1.5%. The French operator and Masmovil have announced that they have signed an agreement to combine their activities in Spain, the result of exclusive negotiations started in this direction in early March 2022.
ADP loses 1.8%. RBC Capital downgraded the title of the airport operator from “outperforming” to “underperforming”.