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Market: Stocks sink, Tokyo flies to the aid of the yen


PARIS (Reuters) – European stock markets ended in the red on Thursday and Wall Street fell mid-session, the almost general rise in interest rates and the multiple warnings about the risks of recession weighing on investor morale.

The foreign exchange market, for its part, is driven by the intervention of the Japanese authorities to stem the fall of the yen, the first in 24 years.

In Paris, the CAC 40 lost 1.87% (112.83 points) to 5,918.50 points, its lowest closing level since July 14. In London, the FTSE 100 fell 1.08% and in Frankfurt, the Dax fell 1.84%.

The EuroStoxx 50 index ended down 1.85%, the FTSEurofirst 300 1.74% and the Stoxx 600 1.79%, the lowest since February 2021.

At the time of the close in Europe, Wall Street was also evolving in the red, the Dow Jones yielding 0.3%, the Standard & Poor’s 500 0.74% and the Nasdaq Composite 1.39%.

The MSCI World Index hit its lowest level since November 2020.

U.S. tech and growth stocks bear the brunt of Wednesday’s speech by Federal Reserve Chairman Jerome Powell, who justified further rate hikes on the need to lower inflation while acknowledging that this process would not be painless, even if he did not go so far as to utter the word “recession”.

The Bank of England (BoE), for its part, raised its key rate by half a point, as expected, while explaining that it forecasts a second consecutive contraction in British gross domestic product (GDP) in the third quarter, which would meet the definition of a technical recession.

Before the BoE, the Swiss National Bank (SNB) and Norges Bank, the Norwegian central bank, had also raised their main rate while the Bank of Japan had chosen to maintain the status quo to support the economy.

It is this increasingly marked discrepancy between the monetary strategies of Japan and other major developed economies that precipitated Tokyo’s intervention in the foreign exchange market.

CHANGES

This intervention succeeded in interrupting the fall of the yen: while heading for a new low of 24 years at almost 146 per dollar, it recovered around 140 before stabilizing around 142, on the rise. by 1.38%.

Most traders, however, believe this respite is unsustainable.

“Over the next three to six months and beyond, as long as divergent monetary strategies remain in place and differences persist, we will continue to see the yen weaken,” predicts Brendan McKenna, economist and currency strategist. of Wells Fargo Securities.

The British pound, meanwhile, pared its losses against the greenback to 1.1273 after a 37-year low of 1.1213.

The euro limits its decline to 0.02%, to 0.9835 dollars, not far from the 20-year low hit at the start of the day at 0.9807.

RATE

The Fed’s announcements and the prospect of a further rise in key rates favored a further surge in European bond yields: at the end of the session, the German two-year took nearly nine basis points to 1.836% after a more 11+ year high at 1.897%.

The ten-year then rose to 1.963%, its highest level since September 2013.

The explanation for these movements can be found in the American market, where the rise in yields is accelerating: the two-year takes more than 13 basis points to 4.1223% and the ten-year nearly 16 points to 3.6661%. .

The spread between the two maturities briefly reached 58 points, reflecting the most marked inversion of the yield curve since 2000, ie an increase in the estimated risk of recession over the one- to two-year horizon.

VALUES

In Europe, among the most marked sectoral declines of the day, the real estate compartment fell by 4.28% and that of high technologies by 4.24%.

Within the CAC 40, STMicroelectronics lost 5.96% and Unibail-Rodamco-Westfield 5.98%.

The European banking index, supported by rising rates, synonymous with improved credit margins, only lost 0% and some big names in the sector ended in the green like Société Générale (+1.60%) .

OIL

Oil prices continue to benefit from renewed geopolitical tension around Ukraine, a move that accelerated after reports that the European Union is seeking a solution to cap the price of crude exported by Russia.

Brent gained 0.95% to 90.68 dollars a barrel and American light crude (West Texas Intermediate, WTI) took 1.01% to 83.78 dollars.

(Written by Marc Angrand)

Copyright © 2022 Thomson Reuters



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