THE MAJOR EUROPEAN STOCK EXCHANGES ARE EXPECTED TO FALL
by Marc Angrand
PARIS (Reuters) – The main European stock markets are expected to fall on Wednesday in the wake of Wall Street and Tokyo after the latest statements from officials of the United States Federal Reserve, which revive fears of seeing a rapid tightening of monetary policy in the United States. States weigh on growth and fuel the rise in bond yields and the dollar.
Index futures suggest a decline 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 virtually unchanged.
Fed Governor Lael Brainard, considered moderate, on Tuesday said he expected the central bank to return to “more neutral” monetary policy by the end of this year with a combination of rate hikes and a rapid cut. of its balance sheet.
His statements reinforced the scenario of several half-point hikes in the federal funds rate (“fed funds”) at the next meetings of the Fed in order to curb inflation.
For Kristina Hooper, head 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 more and more difficult to achieve a soft landing.”
Mary Daly, the 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 it.
In this context, investors will carefully study the minutes of the US central bank’s March meeting, which will be published at 18:00 GMT.
Another cause for 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 against 50.2 in February.
In Europe, the first indicator of the day is hardly more encouraging since it shows a much more marked drop than expected (-2.2%) in industrial orders in Germany in February.
RATE
Yields on US Treasury bonds continue to rise, to their highest since the start of 2019 for the two-year at 2.5674% (+6.3 basis points), since December 2018 for the five-year 2.7618% (+5 .5 points) and since March 2019 for the ten-year 2.6069% (+6.5 points).
Lael Brainard’s talk about the Fed’s rate hike and balance sheet shrinking, which involves massive central bank Treasuries disposals in the coming months, only reinforces the selling tide.
In Europe, the rise is attenuated: the ten-year German takes a little more than a point to 0.626% and remains below its highest of last week.
CHANGES
The prospect of US monetary policy tightening also favors the appreciation of the dollar, which is at its highest since May 2020 against a basket of benchmark currencies, gaining another 0.28% after a jump of 0.5% on Tuesday.
The euro, on the other hand, suffered and fell back below 1.09 dollars for the first time in three weeks.
AT WALL STREET
The New York Stock Exchange ended Tuesday sharply lower on Tuesday, weighed down by technology stocks which suffered from comments by the Fed on possible aggressive measures to control inflation.
The Dow Jones index 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 fell 328.39 points (-2.26%) to 14,204.17, its largest percentage drop in a session for a month.
Among the heavyweights of the technology sector, sensitive to expectations of rate hikes, Apple lost 1.89% and Amazon 2.55%.
Against the trend, Twitter gained another 2% the day after a jump of 27.1% after the announcement of the upcoming entry to its board of directors of Elon Musk, the boss of Tesla who became its first shareholder.
Futures suggest a slightly lower open for now.
IN ASIA
At the Tokyo Stock Exchange, the Nikkei index ended the day down 1.58% to 27,350.30 points, the prospects of monetary tightening in the United States having weighed on investor sentiment.
In China, where markets remained closed on Monday and Tuesday, the trend is suffering more from 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 0.53%.
OIL
The oil market is hesitant awaiting firm decisions on possible new Western sanctions against Russia that could reduce global supply.
This factor, which is likely to support prices, is opposed by several downside factors, whether the rise in the dollar, the increase in crude inventories in the United States (+1.1 million barrels last week according to the American Petroleum Institute quoted by market sources) or the extension of the containment in Shanghai.
Brent gained 0.42% to 107.09 dollars a barrel and US light crude (West Texas Intermediate, WTI) 0.24% to 102.20 dollars.
(With Lewis Krauskopf in New York)