by Claude Chendjou
PARIS (Reuters) – European stock markets ended lower on Tuesday, affected by the resurgence of the COVID-19 epidemic in China which adds to uncertainties over the war in Ukraine, while on Wall Street, where the indices move in the green at mid-session, investors are more focused on the US Federal Reserve, which begins a two-day meeting.
In Paris, the CAC 40 ended down 0.23% at 6,355 points. Britain’s Footsie fell 0.32% and Germany’s Dax 0.09%.
The EuroStoxx 50 index fell by 0.04%, the FTSEurofirst 300 by 0.22% and the Stoxx 600 by 0.3%.
Risk aversion dominated equity markets in Europe, with Russia claiming to have taken control of the Kherson region in southern Ukraine, while in China, the epidemic outbreak is undermining the strategy Beijing’s “zero COVID”.
“Sectors exposed to China – basic materials, mining and metals, residential construction and luxury stocks – are affected in part by the restrictions put in place in certain provinces in China,” comments Nick Nelson, European equity strategist at UBS.
“This is a new element likely to worry the markets in terms of impact on economic growth and demand from European companies selling in China,” he adds.
The monthly survey by the German institute ZEW also showed a record drop in March in investor sentiment with an index that fell in one month from 10.0 to -39.3, while that of Bank of America among managers of funds pointed out that investors were now fleeing equities and falling back on cash.
In the United States, where the Wall Street indices closed in disorder on Monday, the positive trend was reinforced by the publication of producer prices in February. This indicator advanced faster than expected, up 0.8% month-on-month and 10.0% year-on-year, as the Fed’s Federal Open Market Committee (FOMC) meets this Tuesday and Wednesday.
Traders put a 91% chance of a 25 basis point Fed rate hike on Wednesday to counter inflation. Investors are mainly interested in the elements that the American central bank could provide concerning the pace of the rise in the cost of credit, the monetary tightening being largely priced in by the markets.
VALUES IN EUROPE
In Europe, the only sector to have escaped the general decline is that of utilities (+0.28%), while, on the other hand, the commodity compartment (-2.09%) showed the strongest decrease.
ArcelorMittal and Thyssenkrupp each dropped around 1.4%.
In the luxury sector, which generates a large part of its turnover in China, Hermès fell by 3.1%, LVMH by 1.4% and Richemont by 3.3%.
Elsewhere in Europe, Solvay (-1.9%) ended in the red after the announcement of a plan to split into two independent listed entities, as did the tobacco manufacturer Swedish Match (-4.2%) which decided, for its part, to suspend its project of demerger and listing of its activities in the United States.
On the upside, Pearson, coveted by the American fund Apollo, gained 8.6%.
IN WALL STREET
At the time of the close in Europe, the Dow Jones advanced by 1.5%, the Standard & Poor’s 500 by 1.7% and the Nasdaq by 2.2%, in a context of falling volatility (-3%) on the stairs.
Ten of the eleven main sectors of the S&P evolve in the green, the technological compartment (+2.8%), supported by Microsoft (+3.1%) and Broadcom (+4.4%), and that of the consumption of services non-essential (+2.7%) recording the highest increases.
The banking index, for its part, takes 0.5% with in particular JMorgan Chase & Co (+2%) in the perspective of a rise in key rates.
Airlines Delta Air Lines (+7.4%), United Airlines (+7.5%) and Southwest Airlines (+3.5%) benefit from the increase in their revenue forecasts for the quarter In progress.
On the downside, the oil groups Chevron, ExxonMobil and Occidental Petroleum dropped from 2.3% to 4.3% with the fall in crude prices.
CHANGES
In foreign exchange, the dollar is stable against a basket of reference currencies, its index having gained almost 3% since the outbreak of the war between Russia and Ukraine.
The euro advanced 0.16% to 1.0955 dollars after briefly returning above 1.10.
RATE
On the eve of the Fed’s monetary policy decision, the yield on ten-year US Treasury bonds fell by 1.6 basis points to 2.1242%. That of two years, the most sensitive to changes in rates, is displayed at 1.8142% after having reached a peak the day before since August 2019 at 1.8494%.
In Europe, where yields jumped more than ten points on Monday, that of the ten-year German Bund ended Tuesday down 4.5 basis points to 0.329%, affected in part by the publication of the Zew index. The yield of the French OAT of the same maturity fell 3.7 basis points to 0.810%.
OIL
The oil market is trading at a two-week low, penalized by a decline in supply fears and the beginning of demand concerns.
In its monthly report, the Organization of the Petroleum Exporting Countries suggests that the war in Ukraine and rising prices could weigh on crude demand this year.
A draft declaration by the leaders of the countries of the European Union also shows that the bloc will call for an immediate replenishment of gas stocks for next winter.
At the time of the close of trading in Europe, the barrel of Brent fell by 5.22% to 101.25 dollars and that of American light crude (West Texas Intermediate, WTI) by 5.69% to 97.15 dollars, after falling to $97.44 and $93.54 respectively, a low since February 25.
(Report Claude Chendjou, edited by Jean-Michel Bélot)
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