Europe marks a pause as bond yields rise

by Claude Chendjou

PARIS (Reuters) – European stock markets ended slightly lower on Monday and Wall Street was also in the red at mid-session in a context of rising bond yields and consolidation after the recent peaks of the indices.

Mixed macroeconomic indicators and contrasting company results did not allow investors to have firm convictions in a session marked by narrow upward and downward fluctuations.

In Paris, the CAC 40, which reached an unprecedented peak last week at 7,702.95 points, ended down 0.03% at 7,589.96 points. The British Footsie, up for a good part of the session thanks in particular to the defensive “utilities” compartment, lost 0.04%. The German Dax, which also recorded a record Friday at 17,004.55 points, dropped 0.08%.

The EuroStoxx 50 index fell by 0.11% and the FTSEurofirst 300 by 0.08%. The Stoxx 600 lost 0.14% but remained close to its all-time high of 487.66 points, reached on Friday.

At the close in Europe, the Dow Jones fell by 0.93%, the Standard & Poor’s 500 by 0.48% and the Nasdaq by 0.49% while the three main Wall Street indices recorded last week their fourth consecutive weekly increase, the S&P-500 even registering a record at 4,975.29 points during the session on Friday.

In addition to the consolidation movement, the stock markets were affected by tensions in the bond market, the president of the American Federal Reserve (Fed), Jerome Powell, having declared in an interview broadcast Sunday evening by CBS that more evidence of a lasting downward trend in inflation to justify a reduction in key rates.

The President of the Minneapolis Fed, Neel Kashkari, stressed for his part, in an essay published Monday, that a resilient economy could delay the timetable for monetary easing expected by the markets.

The ISM index published Monday in the United States shows that growth in activity in the services sector accelerated in January, more strongly than expected, to 53.4 after 50.5 in December.

In Europe, where the monthly PMI indices for the sector were also communicated, the euro zone economy is showing timid signs of recovery for the start of the year, while in the United Kingdom, services activity has started 2024 on solid foundations thanks to resilient demand.

The Organization for Economic Co-operation and Development (OECD) said on Monday it was targeting global gross domestic product (GDP) growth of 2.9% this year, after 3.1% last year, and against a previous forecast. by 2.7%.

This good economic news was perceived by the money markets as a bad signal and they revised downwards their expectations for a reduction in key rates, counting in particular on a reduction of 125 basis points in the rates of the European Central Bank (ECB). this year compared to around 140 points last week.

A WALL STREET

Numerous publications also liven up the discussions, starting with Caterpillar, considered a good barometer of the American economy, which rose 1.99%, thanks to a solid quarterly profit supported by strong demand for equipment. construction.

Estée Lauder (+14.21%) is supported by a job cut plan, while McDonald’s (-4.45%), which weighs on the Dow Jones, suffers from the publication of a quarterly turnover below expectations for the first time in nearly four years.

Nvidia shares hit a new high Monday at $694.97 after Goldman Sachs raised its price target on the semiconductor maker amid a boom in artificial intelligence (AI).

VALUES IN EUROPE

Atos plunged 28.94% due to renewed concerns about the financial situation.

Renault gained 1.11% despite Stellantis’ denial (-0.82%) of a proposed merger.

L’Oréal (+1.80%), one of the best performers on the CAC, benefited from the stock market jump of Estée Lauder.

Societe Generale fell by 1.47%, the group having announced a project to reorganize its headquarters in France and cut 900 positions.

UniCredit climbed 8.1% thanks to better than expected annual profit.

Santander (-5%) and Lloyds (-1%) were affected by information from the Financial Times on circumvention of sanctions against Tehran via bank accounts in the United Kingdom of the two banks.

Vodafone fell by (-3.30%) after the announcement of “active discussions” in Italy while the British group rejected at the end of January Iliad’s proposal to merge their activities in the country.

TODAY’S INDICATORS

Investor sentiment in the euro zone improved for the fourth consecutive month in February, reaching its highest level since April, but the weakness of the German economy is limiting the rebound, according to the Sentix index.

German exports fell more than expected in December, falling 4.6% month-on-month, according to data from the Federal Statistical Office.

RATE

The yield on ten-year Treasuries soared by 13.1 basis points to 4.1579% after Jerome Powell’s call for “caution”.

Those of the German Bund at ten and two years followed the trend, ending respectively up 9.5 basis points, to 2.315%, and 7.9 basis points, to 2.6143%.

The German ten, rising to 2.332%, reached its highest since January 25, while the probability of a first ECB rate cut of 25 basis points in April is now only estimated at 63 % compared to 100% last week.

CHANGES

The dollar climbed 0.47% against a basket of benchmark currencies on Monday, to an 11-week high as bets on an aggressive Fed rate cut fade.

The euro fell by 0.49%, to 1.0731 dollars, after hitting a session low since November 14, at 1.0721.

The pound sterling stands at $1.2528 (-0.83%), after falling to its lowest level since December 13.

OIL

The oil market is stable after a decline of around 7% over the whole of last week in the wake of strong monthly US employment figures. Geopolitical tensions with new strikes carried out by the United States against the Houthis in Yemen, however, offer some support to the crude price.

Brent nibbles 0.04% to $77.30 per barrel and American light crude (West Texas Intermediate, WTI) gains 0.25% to $72.10.

(Written by Claude Chendjou, edited by Sophie Louet)