by Laetitia Volga
PARIS (Reuters) – Stock markets in Paris and Frankfurt ended lower on Wednesday as bond yields accelerated on inflation fears, while the London Stock Exchange was positive mining stocks and the decline of the pound.
In Paris, the CAC 40 lost 0.46% to 7,234.25 points. The British Footsie advanced 0.49% and the German Dax lost 0.39%.
The EuroStoxx 50 index fell by 0.53%, the FTSEurofirst 300 by 0.72% and the Stoxx 600 by 0.74%.
On Wall Street, the Dow Jones, the S&P-500 and the Nasdaq Composite lost between 0.17% and 0.75%.
The rise in government bond yields accelerated in Europe and the United States, where ten-year Treasury yields briefly rose above 4%, with the prospect reinforced that central banks will raise their key rates. at higher levels than previously estimated.
After taking note on Tuesday of a surprise acceleration of inflation in France and Spain, investors worried about the sharper than expected increase in consumer prices in Germany in February, at 9.3% in pace annual.
“From the ECB’s perspective, this clearly tilts the risk towards another 50 basis point rate hike in May, after the well-telegraphed one for March,” said Greg Fuzesi, an economist at JPMorgan. “Therefore, a slowdown to 25 basis points could be delayed, which would also push the terminal rate higher.”
The main European indices had however started the session on an optimistic note thanks to the publication in China of an official manufacturing PMI index at its highest since April 2012, which gives hope to investors that the country’s recovery can compensate for a slowdown in the other advanced economies.
VALUES
The European commodity compartment posted the strongest sectoral progress of the day with a gain of 2.19%, linked to hopes for China.
Arcelormittal, Glencore and Rio Tinto advanced from 2.25% to 4.55%.
In corporate news, Moncler gained 3.29% and Atos 5.02% after reporting annual sales above expectations.
Also down, BNP Paribas dropped 4.16%, Belgium, its largest shareholder, having announced the sale of a third of the capital held. The fund distribution platform Allfunds fell 13.12% following the withdrawal by Euronext (+4.02%) of its indicative purchase offer.
THE INDICATORS OF THE DAY
In the United States, activity in the manufacturing sector contracted in February for the fourth month in a row, according to the ISM survey, and the sub-index of prices paid by industrialists rebounded to 51.3 after 44 ,5.
This last point is likely to push the Fed to push rates even further into restrictive territory and stay there longer, analysts say.
Traders expect the Fed to raise the federal funds rate target to a range of 5.25%-5.50% from 4.50%-4.75% currently. This is more than the level reported in December by members of the institution.
RATE
Yields on US Treasuries are climbing, with the 10-year one gaining more than eight basis points to 3.9886% after crossing the 4% threshold for the first time since November.
In the euro zone, the yield on the ten-year German Bund rose to 2.728%, the highest since 2011.
CHANGES
On the foreign exchange market, the yuan took nearly 1% against the dollar after the statistics published in China. And the euro, at 1.067 dollars, gained 0.85%, with German inflation figures fueling fears about the ECB’s monetary policy.
The “dollar index”, which measures the variations of the greenback against a basket of currencies, is thus logically down, by 0.47%.
The pound fell after the Governor of the Bank of England said it was possible the central bank had already come to the end of its rate hike cycle.
“The pound’s weakness shouldn’t come as too much of a surprise given that we know for certain that the ECB and Federal Reserve will make further rate hikes in March, and likely in May as well, while in the UK , we will surely have a rise in March but the situation after is less clear,” said Michael Hewson at CMC Markets.
“Someone should remind the governor that headline inflation is still above 10%, much higher than in Germany, and a 4% base rate is not likely to solve this problem.”
OIL
Oil prices are moving without a clear direction, torn between the increase in crude inventories in the United States and the hope of an improvement in demand in China.
Brent gained 0.25% to $83.66 a barrel and US light crude (West Texas Intermediate, WTI) fell 0.06% to $77.
(Laetitia Volga, editing by Kate Entringer)
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