EUROPEAN STOCK MARKETS END LOWER
by Claude Chendjou
PARIS (Reuters) – European stocks ended lower on Wednesday and Wall Street was also in the red mid-session in volatile markets, as investors feared accelerated monetary tightening from central banks in the light of the latest economic data.
In Paris, the CAC 40 ended down 0.77% at 6,418.89 points. The British Footsie dropped 0.98% and the German Dax 0.33%.
The EuroStoxx 50 index fell by 0.78%, the FTSEurofirst 300 by 0.94% and the Stoxx 600 by 1.04%.
Uncertainties about economic growth and central bank policies are fueling risk aversion and volatility on equity markets, which have alternated between rising and falling during the session depending on the day’s economic indicators.
Growth in manufacturing activity in the euro zone slowed in May to 54.6, the lowest since November 2020, while retail sales in Germany fell more than expected in April, by 5.4%.
In the United States, on the other hand, manufacturing activity reaccelerated in May against all expectations thanks to continued vigorous demand, which wards off the specter of an imminent recession but at the same time offers the possibility for the Federal Reserve US to raise interest rates sharply.
The Bank of Canada, which estimates that the Canadian economy is in a situation of excess demand, decided on Wednesday to raise its key rate from 1.0% to 1.5%, the second consecutive increase of 50 basis points, and s is said to be ready to go further to bring inflation down to 2%.
“The environment is incredibly uncertain at the moment,” notes Mike Bell, market strategist at JP Morgan Asset Management. “At times like this, it makes sense to reduce the size of your risk positions,” he adds.
For Paul Kim, managing director and founder of Simplify ETFs, not only will interest rates “continue to rise”, but we must expect “a decline in risky assets in an environment which will be the opposite of a decade of accommodative policies”.
A sign of the market’s nervousness, the index measuring volatility took nearly 4% in the United States, approaching the 30-point threshold, and in Europe it ended above 25 points.
VALUES IN EUROPE
In Europe, all the main sectors of the Stoxx 600 ended in the red, the most marked drop being in the real estate asset (-2.15%).
The banking compartment (-0.75%), supported in the session by expectations of rate hikes, closed all its gains.
DWS, the asset management subsidiary of Deutsche Bank (+0.3%), fell 6.3% in reaction to the departure of the chairman of the group’s management board the day after a search of the company’s premises.
The automotive sub-sector, up 1.38%, escaped the general downturn. Renault, at the top of the CAC 40, gained 2.4% in the wake of its partner Nissan, a study by JPMorgan having predicted record profits for the Japanese automotive sector for the current financial year. Stellantis, in second position on the Parisian index, advanced by 1.7%.
In notable increases, Dr. Martens, up 19.5%, was driven by its annual revenue growth forecast and the announcement that the group will resume paying the dividend this year.
AT WALL STREET
At the close in Europe, the Dow Jones fell 1.01%, the Standard & Poor’s 500 1.12% and the Nasdaq 1%.
The indices which had opened in the green thanks to the solid results and forecasts published by companies such as Salesforce (+ 10.1%) or Capri (+ 0.7%), turned around after the figures for manufacturing activity in the USA.
Ten of the eleven major sectors of the S&P-500 are now trading in the red, with real estate (-2.03%) posting one of the biggest declines, while energy (+0.6%) is the only one in rise.
The new technologies compartment (-0.6%) also gave up its initial gains linked to bargain purchases on stocks such as Apple, Microsoft and even Meta Platforms.
CHANGES
The dollar appreciated 0.94% against a basket of benchmark currencies and hit a two-week high against the yen at 130.08, supported by the rise in US bond yields.
The euro, down 0.83% to 1.0644 dollars, is clearly away from its one-month peak recorded Monday at 1.0787.
RATE
Bond yields continue to benefit from expectations of higher rates given record inflation figures and other economic data.
That of the ten-year German Bund, benchmark for the euro zone, took more than five points to 1.179%. Since the start of the week it has gained more than 20 basis points and is heading for its best weekly performance in almost a month.
The yield on ten-year US Treasury bonds rose 8.9 points to 2.9332% and that of two-year bonds, the most sensitive to changes in rates, took 13 points to 2.670%.
OIL
Oil prices are still supported by the European agreement on a massive embargo on Russian crude imports and the lifting of the containment in Shanghai.
The barrel of Brent advances by 1.35% to 117.14 dollars and that of American light crude (West Texas Intermediate, WTI) by 1.28% to 116.17 dollars.
METALS
Risk aversion favors gold, back on Wednesday from a two-week low. The yellow metal took 0.31% to 1,842.61 dollars an ounce at the close of trading in Europe.
(Written by Claude Chendjou, edited by Jean-Michel Bélot)