EUROPEAN STOCK MARKETS END UP SLIGHTLY
by Claude Chendjou
PARIS (Reuters) – European stocks ended slightly higher on Friday on the back of a sharp drop in bond yields after the surprise contraction in private sector activity this month, while Wall Street was in the red mid-session in a context of mixed corporate results.
In Paris, the CAC 40 ended with a gain of 0.25% to 6,216.82 points. The British Footsie advanced 0.14% and the German Dax 0.05%.
The Milan Stock Exchange gained 0.22% despite President Sergio Mattarella’s decision to dissolve Parliament the day after the breakup of Mario Draghi’s coalition, which had governed since February 2021.
The EuroStoxx 50 index gained 0.11%, the FTSEurofirst 300 0.26% and the Stoxx 600 0.4%.
Over the week as a whole, the Parisian index gained 2.99% and the pan-European Stoxx 600 2.97%.
The positive trend in Europe was supported by defensive stocks and hopes for less aggressive monetary policy than expected, as eurozone private sector activity unexpectedly contracted in July with a PMI composite fell to 49.4 in first estimate after 52.0 in June and a Reuters consensus at 51.0.
In the United Kingdom, growth in private activity fell to its lowest in 17 months with a “flash” composite PMI index down to 52.8.
Analysts say the new data suggests the euro zone has already entered or is on the way to recession, which would force the European Central Bank to moderate the future pace of rate hikes in the aftermath of a hike. the cost of credit by 50 basis points.
In bond markets, the ten-year German Bund yield fell briefly below 1% on Friday, as the Bundesbank expects weaker-than-expected growth in the third quarter.
“Market attention has shifted from concerns about inflation to concerns about growth, with the feeling that bad news is once again becoming good news,” writes Barclays, adding that disappointing corporate results, economic data and the crisis policy in Italy “complicate the work of a more restrictive ECB”.
VALUES
The defensive real estate compartment, up 4.28%, the highest since June 10, recorded the best progress in the Stoxx 600, while banks, down 1.2%, showed the most sharp drop, in response to falling bond yields.
In values, Publicis, which had already jumped the day before by 5.05% thanks to the raising of its annual forecasts, took another 1.53% with the change in recommendation from JPMorgan to “overweight” on the value. Its British competitor WPP advanced 0.20%, while the media compartment gained 0.51%.
In the red, Ubisoft lost 1.34% after announcing the postponement of the release of the game “Avatar: Frontier of Pandora” on the occasion of the publication of its turnover for the first quarter.
Danske Bank fell 2.16% and Swiss elevator maker Schindler 3.87% as their annual forecasts were lowered.
Uniper plunged 28.9% despite its bailout announcement.
AT WALL STREET
At the close in Europe, the Dow Jones fell 0.21%, the Standard & Poor’s 500 lost 0.68% and the Nasdaq 1.56%.
The disappointing results of Snap (-38.68%) and Twitter (-0.88%), which drag in their wake other giants of the technology sector such as Meta Platforms (-7.24%) and Alphabet (- 5.19%), weigh on the Nasdaq.
In contrast, American Express, up 2.85% after raising its annual growth forecast, offers some support to the Dow.
RATE
Bond yields in Europe ended sharply lower on private activity data: The German 10-year Bund yield fell about 20 basis points to 1.023% after briefly falling below 1% in session for the first times since May 30.
Its French equivalent of the same maturity also dropped nearly 20 points to 1.622%.
“I think it’s pretty clear that the market is increasingly worried about a recession in the euro zone this winter: activity is already falling off a cliff ahead of a possible shutdown of the Russian gas in winter,” said Michael Brown, market manager at Caxton.
The yield spread (“spread”) between the German and Italian ten-year bonds rose to 247 basis points on Friday, despite the ECB’s announcement on Thursday of a new bond purchase program to limit a excessive widening of the spreads of the countries of the euro zone, the observers pointing out the lack of details and the rather vague conditions of this tool, called Instrument of protection of the transmission (IPT).
In the United States, the yield on Treasury bills also fell, by 12 points to 2.779%, with traders estimating the probability of a 100 basis point hike in US Federal Reserve rates at only 16.3% (Fed ) next week.
CHANGES
The euro fell 0.12% to 1.0216 dollars in reaction to the latest PMI figures.
The dollar, for its part, fell 0.44% against a basket of benchmark currencies after the surprise drop, for the first time in nearly two years, in corporate activity, the S&P Global composite index having emerged in July to 47.5 in “flash” reading against 52.3 in June.
OIL
Oil prices are volatile on the back of supply tensions and fears over global demand.
Brent gained 1.3% to 105.21 dollars a barrel and US light crude (West Texas Intermediate, WTI) 1.04% to 97.35 dollars.
(Some data may show a slight shift)
(Written by Claude Chendjou, edited by Sophie Louet)