Headquarters of Euronext in Paris
by CORENTIN CHAPPRON
PARIS (Reuters) – European stock markets ended higher on Friday, as markets saw in the monetary policy decisions taken this week the end of the tightening cycle despite the very restrictive speeches of central banks which insist on the importance of bringing back the target inflation.
In Paris, the CAC 40 gained 1.34% to 7,388.7 points and the German Dax 0.41%, against 0.19% for the British Footsie.
The EuroStoxx 50 index ended the session up 0.68%, the FTSEurofirst 300 0.55% and the Stoxx 600 0.53%.
In this week marked by the ECB’s rate hike on Thursday and the “hawkish” positioning adopted by the Fed on Wednesday, the CAC rose by 2.43%, against 1.48% for the Stoxx 600.
The Fed did not raise rates on Wednesday but warned that it would likely make two more hikes while the ECB raised rates by a quarter point on Thursday, leaving the door open for further monetary tightening.
Both central banks see core inflation remaining above target, warranting a restrictive stance, but economies are starting to show signs of weakening that could precipitate a recession and force institutions to cut rates.
Two Fed governors made further “hawkish” comments on Friday.
“Central banks do not know more than us and must be apprehended on their actions and on their displayed will rather than on their forecasts or the potential success of their actions”, believe the strategists of Octo AM.
“In our opinion, it is much too early to think of any rate cut or reversal of monetary policy, unless there is an exogenous event (…) which is more a matter of extra-financial hazard.”
VALUES
The European distribution compartment posted the best performance of the Stoxx 600 sectors on Friday, with a gain of 1.28%.
The defensive compartments of health and community services rose by 0.97% and 1.16% respectively.
Rheinmetall ended up 4.93% after revealing it expects a multibillion-euro German government order for ammunition.
Travis Perkins, Britain’s largest construction materials supplier, was the worst performer in the European index, down 6.71% on the session, after announcing that its profits would be affected by the difficulties in the housing market British.
In France, Air Liquide signed a first long-term purchase contract for renewable electricity in China, and posted the best performance of the CAC 40, up 4.77%.
AT WALL STREET
By the time Europe closed, the New York Stock Exchange had erased nearly all of its early-trading gains, with the Dow Jones and Standard & Poor’s 500 flat, while the Nasdaq Composite lost 0.20. %.
Statements by Fed governors Christopher Waller and Thomas Barkin, who expressed concern about the persistence of inflation, played a role in the reversal of the trend.
THE INDICATORS OF THE DAY
Eurostat has published the final inflation figure for the euro zone for May, confirmed at 6.1% over one year after 7% the previous month.
In the United States, the US household sentiment index rebounded sharply in June after hitting its lowest level since November in May, preliminary results from the University of Michigan’s monthly survey show, which indicates moreover, that household inflation expectations are moderating markedly.
CHANGES
The euro erased some of its Thursday gains, which had taken it to its highest level in more than four weeks against the dollar, but remains supported by the ECB’s rate hike path.
The euro is trading at $1.0924 (-0.20%), while the greenback is up (+0.29%) against a basket of benchmark currencies, supported by statements from Fed governors.
However, the greenback is down over the week.
RATE
The yield on two-year German government bonds, sensitive to monetary policy expectations, ended at 3.181%, the highest since March.
The German 10-year Bund yield fell to 2.468%, while the Italian 10-year BTP yield fell nine basis points to 4.031%.
In the United States, yields on ten-year and two-year Treasuries rose by more than three and seven basis points to 3.7594% and 4.7205% respectively, supported by the “hawkish” declarations of two governors of the Fed, Friday.
OIL
Oil is expected to end the week higher, supported in particular by a more optimistic Chinese demand outlook.
Brent rose 0.16% to 75.78 dollars a barrel and US light crude (West Texas Intermediate, WTI) gained 0.34% to 70.86 dollars.
TO BE FOLLOWED ON MONDAY:
(Report Corentin Chapron, edited by Blandine Hénault)