by Marc Angrand
PARIS (Reuters) – Wall Street is expected to fall sharply and European stock markets are trading at their lowest in almost a month at mid-session on Monday, fears linked to the rise in interest rates and the health of the global economy far outweighing the relief provided to some investors by the re-election of Emmanuel Macron in France.
Futures contracts on the main New York indices signal an opening down 0.82% for the Dow Jones, 0.81% for the Standard & Poor’s 500 and 0.78% for the Nasdaq.
In Paris, the CAC 40 lost 2.34% to 6,427.70 points at 11:00 GMT after falling to 6,408.71, its lowest level since March 14. In London, the FTSE 100 lost 2.2% and in Frankfurt, the Dax fell 1.72%.
The EuroStoxx 50 index is down 2.26%, the FTSEurofirst 300 2.14% and the Stoxx 600 2.06%, the lowest since March 16.
At the same time, the EuroStoxx 50 volatility index rose above 30 points for the first time in two weeks.
Chinese markets meanwhile experienced their worst session since February 2020 with a 5.13% drop for the Shanghai SSE Composite Index, after the start of a massive COVID-19 detection campaign in one of the largest districts of Beijing, where several dozen cases have already been reported.
The news raises fears of new large-scale confinements which would further curb the growth of the world’s second largest economy.
“The tightening of ‘zero COVID’ restrictions in Shanghai and the fear that Omicron has won Beijing have torpedoed market sentiment”, summarizes Jeffrey Halley, analyst at OANDA.
This prospect worries investors all the more as they continue to wonder about the scale and pace of rate hikes in the United States in the weeks and months to come, a strategic shift that could increase the probability of a recession.
In this context, the result of the second round of the French presidential election does not weigh heavily, especially since it is far from answering all the questions investors have about the policy that Paris will pursue in the coming years.
“All eyes will now turn to the legislative elections on June 12 and 19,” notes Philippe Gudin, senior economist at Barclays. “If he fails to secure a majority, (Macron) will be forced to seek compromises to implement his reform program.”
The markets also virtually ignored the slightly more marked than expected rise in the Ifo business climate index in Germany, which suggests better resistance than expected to the impact of the war in Ukraine.
OIL
The fear that the prolongation and extension of confinements in China will weigh on demand from the world’s largest importer of crude oil is driving down the price of a barrel, as is the prospect of a rapid rise in interest rates.
Brent fell 4.43% to 101.93 dollars a barrel and US light crude (West Texas Intermediate, WTI) fell 4.56% to 97.42 dollars, the lowest since April 12.
Prices have already fallen nearly 5% in the past week and Brent’s decline since last month’s peak at $139 is now over 25%.
VALUES IN EUROPE
Sharp decline in crude oil and concerns about the Chinese economy weigh on prices for oil stocks and commodity producers in Europe: the Stoxx energy index and the basic resources index lose 3.59 respectively % and 5.8% and in Paris, ArcelorMittal (-7.94%) shows the most marked decline in the CAC 40 while TotalEnergies yields 2.87%.
The situation in China also penalizes once again luxury stocks such as Kering (-4.44%) or LVMH (-3.89%).
In the news of the results, Philips fell 12.42% after quarterly below consensus.
More than 140 companies in the STOXX 600 are due to release their quarterly revenue or results this week.
RATE
The search for security, by attracting investors to government bonds, resulted in a marked drop in yields, despite expectations of rate hikes: that of ten-year US Treasury bonds lost more than seven basis points to 2.8313% and the two-year returns to 2.6236%.
In Europe, the ten-year German yields more than two points to 0.903%. The decline is more marked for its French equivalent, which fell by nearly four points to 1.373% the day after the second round of the presidential election.
CHANGES
On the currency market, the decline in assets deemed the safest is fully benefiting the dollar, which appreciated by 0.43% against a basket of reference currencies, the highest since March 2020.
This marked movement of “flight to quality” has the particular effect of preventing the euro from benefiting from the result of the French presidential election: the single currency returns to 1.0722 dollars, down 0.67%.
The Chinese yuan meanwhile fell to its lowest level in a year.
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