The respite was short-lived. After a few days during which, thanks to a major political “reset” in the United Kingdom, investors had more peace of mind to focus on quarterly company publications, the Paris Stock Exchange is down again today today, although the Cac 40 ended far from its lows for the day, helped at the end of the session by a slight easing in rates, which turned the tide following an article by wall street journal. the Bedroom 40 closed down 0.85%, at 6,035.39 points, while it fell more than 2% until around 4 p.m. Over the week, the Parisian index rose by 1.7%. On Tuesday, the Cac 40 surged to almost 6,140 points, the highest since September 15, before the US central bank raised its benchmark rates by 75 basis points (to bring them into a range of 3-3, 25%) for the third time in a row and that the United Kingdom does not revive the specter of a systemic crisis à la Lehman Brothers.
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The dismissal of the former British finance minister, his replacement by Jeremy Hunt who very quickly buried his predecessor’s unfunded tax measures (the very ones that set fire to the powder keg and almost blew up the planet finance), then, yesterday, the resignation of Liz Truss from the post of Prime Minister suggests a return to a more orthodox economic and budgetary policy in this G7 country. Yields on UK 30-year government bonds (among those bearing the scars of the recent chaos as pension funds were forced to sell their long-dated bonds to meet margin calls) had fallen to almost 3.8 % yesterday at the time of the closing of the European markets, against almost 5% at the end of last week and more than 5% at the end of September, after the announcement of “Trussonomics”. They are now up to 4%. On the main bond markets, sovereign bond rates are trending up again. Those of France at 10 years, at more than 3%, are at their highest since 2012. In the United States, sovereign rates of the same maturity, at more than 4.3%, return to the levels which were theirs in 2008 , during the subprime crisis, before the collapse of Lehman Brothers.
Rates above 5% in the United States in the spring?
Again, inflation and interest rates are polarizing investors’ attention as the next eight sessions look high risk. Why ? The largest centrals must give their verdict on their monetary policy over the next two weeks: next Thursday for the European Central Bank (ECB), Friday for the Bank of Japan (BoJ), Wednesday November 2 for the American Federal Reserve (Fed ) and Thursday, November 3 for the Bank of England (BoE). Apart from the very special case of the BoJ, which is still refraining from raising its rates despite inflation which is also starting to run wild at the local level (which is exceptional in a country which has experienced deflation), all the other major central banks will again raise their key rates. How much remains to be seen. The latest inflation figures – whether in the euro zone (9.9% over one year in September), the United Kingdom (again above 10%) and the United States (at 8.2 %, higher than expected, with the Atlanta Fed measure, which distinguishes between rigid prices which change slowly and flexible prices, which show the greatest increase since June 1982) – leave no doubt that the central banks will have to strike hard again. Investors are betting on another 75 basis point rate hike by the ECB, Fed and BoE. For the tenth week in a row, the dollar rose against the yen, which fell to its lowest level since 1990 against the greenback.
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Yesterday, US central bankers spoke for the last time before the “blackout”, a period of silence until the next meeting of the Federal Reserve. And what they said did not please the Stock Exchange. Governor Lisa Cook, who is known to be part of the “doves” camp, reiterated Fed boss Jerome Powell’s message that the central bank “will continue its efforts until the work is completed”and that this “will likely require continued rate hikes and then maintaining tight policy for some time. » For his part, Philadelphia Fed President Patrick Harker said he expects rates to be “much superior” to 4% by the end of the year, which has reinforced investors’ expectations that rates will reach 4.5-4.75% in December (vs. the lower end of 4.25-4.5 % two weeks ago). Since yesterday evening, the debt market is again in turmoil. Fed Funds futures have crossed a new pain threshold, predicting that benchmark rates in the United States will exceed 5% next spring.
These expectations were somewhat relaxed this afternoon on information from the wall street journal reporting that some US central bankers are concerned about the consequences for the economy of an excessive rise in rates. The Fed could consider raising its rates by only 50 basis points in December but would like to avoid a new boom in the markets, as in July, when investors, who are only waiting for that moment, had understood that the end of the rate hike was coming soon and that the Fed was even ready to pivot on the first months of 2023.
Inflation affects L’Oréal sales
On this press article, the Cac 40 has extricated itself from its lows of the day, even if L’Oreal (almost -6%) continued to weigh heavily on the trend. The cosmetics giant, which published its third-quarter sales last night, reported overall growth above expectations. But, as everyone knows, the devil is in the details. The group’s customers seem to postpone their purchases on the cheapest products because of the inflation which is eating into their purchasing power. This will not fail to affect the profitability of the group since, logically, the top-of-the-range brands (Lancome Paris, Ralf Lauren) are the best margined.
It was also concerns about profitability that caused the dropout Kering by more than 3%. Here too, the group published better-than-expected quarterly sales overall, but sales of its flagship brand, Kering, which provides two-thirds of profits, rose less than expected by financial analysts.