EUROPE SHOULD TRY FOR A REBOUND BUT RISKS REMAIN
by Marc Angrand
PARIS (Reuters) – Major European stock markets are expected to rise sharply on Tuesday after Wall Street closed positively the day before on a late-trading rebound, but markets may not be done with volatility. , due to a lack of certainty about the development of the situation in Ukraine and that of the Federal Reserve’s strategy.
Index futures suggest a rise of 1.5% for the CAC 40 in Paris, 0.65% for the Dax in Frankfurt, 0.65% for the FTSE 100 in London and 0.76% for the EuroStoxx 50.
The Paris market fell 3.97% on Monday, its worst performance since November, and the broad European Stoxx 600 index ended on a decline of 3.81%, not seen since June 2020, the markets being brutally caught up by geopolitical tensions with the announcement by NATO of the dispatch of reinforcements to Eastern Europe.
The United States has placed 8,500 soldiers on alert. For its part, Moscow blames the West for stoking tensions.
If Wall Street benefited at the very end of the session from a hunt for bargains, investors’ fears are far from being allayed: the American indices should start to fall again on Tuesday and the major Asian markets are all moving into the red.
Because to geopolitical concerns are added monetary uncertainties, since the US Federal Reserve begins two days of debate which should lead it to clarify Wednesday its intentions in terms of rate hikes and reduction of its balance sheet.
Money markets continue to bet on a first hike in the fed funds rate target in March, but debate remains open on the number of hikes to expect between now and the end of the year.
In this busy context, the publications of results, which are multiplying, go almost unnoticed. IBM nevertheless gained up to 7% in non-session trading on Wall Street on Monday evening after quarterly results above expectations. In Europe, today’s agenda includes among others Ericsson, Swatch and Rémy Cointreau.
AT WALL STREET
The New York Stock Exchange experienced one of the most turbulent sessions in recent years on Monday with successively a sharp drop linked to fears over Ukraine and the Fed and a rapid rebound thanks to bargain purchases which enabled it to to end up in positive territory.
The Dow Jones index, which lost up to more than 1,100 points, thus posted a gain of 0.29%, or 99.13 points, at 34,364.50.
The Standard & Poor’s 500 meanwhile ended up 12.19 points, or 0.28%, at 4,410.13 after falling more than 4%, not seen since March 2020, to briefly enter in the correction zone, i.e. more than 10% below its peak.
The Nasdaq Composite advanced for its part by 86.21 points (+0.63%) to 13,855.13.
Volatility, which jumped to the highest since November 2020 according to the VIX index, looks set to persist as index futures so far suggest an open down nearly 1.5% for the S&P-500 and more than 2% for the Nasdaq.
IN ASIA
On the Tokyo Stock Exchange, the Nikkei index lost 1.66% and hit its lowest level since December 2020. Technologies suffered particularly, such as SoftBank (-5.34%) or Tokyo Electron (-2 .69%).
Chinese markets have not escaped the deterioration in market sentiment either, especially as the approaching Lunar New Year holiday discourages risk-taking: Shanghai’s SSE Composite fell 2.58 % and the CSI 300 2.26%.
EXCHANGES/RATES
Widespread risk aversion continues to favor currencies deemed the safest, such as the yen and the dollar, which rose 0.11% against a benchmark basket but remained below the two-week high reached in Monday session.
The euro is trading around 1.1310 dollars against 1.1289 at Monday’s low.
Markets are pricing in a risk premium for the euro due to fears that Russia will cut gas supplies to the west if tension from Ukraine rises, said ING strategist Francesco Pesole.
Bitcoin, which fell below $33,000 on Monday before rebounding, is struggling to hold above $36,000.
On the government bond market, the yield on ten-year US Treasury bonds rose to 1.7565% after falling in session Monday to 1.707% before the rebound on Wall Street. In Europe, the German ten-year is up -0.09% in early trading.
OIL
The oil market regained some of the ground lost on Monday, with tensions in Eastern Europe and the Middle East still raising fears of tensions over global supply.
Brent gained 0.79% to 86.95 dollars a barrel and American light crude (West Texas Intermediate, WTI) took 0.65% to 83.85 dollars.
They had fallen 1.84% and 2.1% respectively the previous day.
(edited by Bertrand Boucey)