Political uncertainty in France and fears about the Fed have further caused the Cac 40 to fall


The fall of Bedroom 40 continues, again and again… The Parisian index, which fell by 4.6% last week, its worst sequence since the beginning of March and the Russian invasion of Ukraine, dropped 2 again, 67%, to end at 6,022.32 points, its lowest level since March 8. This is its fifth consecutive session of decline. Above all, the Cac 40 is about to switch to a “bear market”, or bear market, since it has dropped 18.45% since its last high point on January 5.

Political uncertainty

In the aftermath of the first round of the legislative elections, the seat of Emmanuel Macron seems very fragile. The presidential coalition Together! is only a few fractions ahead of Nupes, the New Popular Ecological and Social Union, an alliance formed between La France insoumise, the Socialist Party, Europe Écologie-Les Verts and the French Communist Party. The latter received 25.66% of the votes cast, according to the count of the Ministry of the Interior, against 25.75% for Together! In the current state of projections, it seems unlikely that the outcome of the second round will allow Jean-Luc Mélenchon to accede to the post of Prime Minister within the framework of a cohabitation, but the Nupes will nonetheless constitute a sizeable opposition, which will influence the decisions.

The prospect of an absence of an absolute majority in the National Assembly to support Emmanuel Macron’s policy adds to the traditional sources of concern, which are the war in Ukraine, inflation and monetary policy. In the euro zone, the European Central Bank (ECB) paved the way last week for a monetary shift, announcing the end of the asset purchase program at the end of June before a rise in interest rates , the first in eleven years, from July. It thus aligns itself with the American Federal Reserve (Fed), which took the decision in March to increase the cost of money. The movement will continue, while inflation continues to gallop across the Atlantic.

In May, the consumer price index rose 1% on a month and 8.6% on a year, climbing to its highest level since December 1981. The cost of housing, gasoline and food are the main contributors to inflation. On the “hard core” of the index – which excludes volatile data such as food and energy – the strongest increases are observed in housing, plane tickets, cars (new and old). opportunity), health. Faced with this situation, the Fed will become more and more “hawkish”, ie more restrictive in its policy of raising rates and reducing the balance sheet.

The monetary policy committee meets for two days, Tuesday and Wednesday, to make its decision on Wednesday at 8 p.m. (Paris time). In line with the messages already issued by the Fed, the market expects a new monetary tightening of 50 basis points, before an increase of the same magnitude at the July meeting. But some, more gloomy, evoke a rise of 75 basis points in the rate of Fed-funds from this week. On Wall Street, the major indices continue to decline. Around 5:30 p.m., the Dow Jones loses 2.35%, the Nasdaq Composite 3.81% and the S&P500 2.9%. The latter has entered the “bear market” since it has dropped more than 20% compared to its last high in January (-21.4%).

Yield curve inversion

The problem for risky assets is that [la Fed] is faced with a dilemma, and we are faced with two bad choices, summarizes Max Keitner, strategist at HSBC quoted by Bloomberg. Either inflation rises permanently and central banks will have to do more, which would be detrimental to valuations, and ultimately bad for risky assets. Either growth slows more than expected and earnings forecasts will have to be lowered. Since Friday, the path to a soft landing has become even narrower “.

On the bond market, tensions are also palpable. The yield on the 2-year US bond, the most sensitive to a rise in interest rates, stands at 3.22%. It even peaked at 3.2579%, briefly exceeding the yield on the 10-year bond. This inversion of the curve, which is an anomaly, since it is usually more expensive to borrow over a longer period, shows that investors consider it riskier to lend to the State in the short term than in the long term. And consider high the scenario of a recession. Even if this movement is not to be overinterpreted, it shows that the stock market is both nervous and worried.

In Europe, rates followed the same upward movement: the yield on the German 2-year bond crossed the 1% mark for the first time in more than 10 years. That of the 10-year Bund is trading at 1.62%, while that of the Italian BTP is tending to 4%. This weighed on banking stocks. BNP Paribas, Agricultural credit and Societe Generale lost between 3.97% and 4.69%.

With higher yields and markets running for shelter, the US dollar soared, the euro took a beating along with the other sentiment indicators the Australian dollar, New Zealand dollar and the Korean won, observes Jeffrey Halley, senior market analyst, Asia-Pacific, at Oanda.

Sensitive to the economic environment, cyclical and technological stocks lost ground. Unibail-Rodamco-Westfield dropped 8.13%, Renault 7.4% and STMicroelectronics 5.72%.

Valneva in a bad patch?

Apart from the Cac 40, many falls are to be reported. Valneva plunged 25.26%. In a press release issued Friday evening, the Nantes biotech sounded the alarm about the volumes of its vaccine against Covid-19 that the European Union would consider ordering in the event of approval. Insufficient as they stand, they would not allow the VLA2001 program to be continued, which would lead to the termination of the agreement with Brussels.

Also abused, Atos sank 10.98% on the eve of the presentation of its new medium-term roadmap. According to BFM Business, citing a source familiar with the matter, the IT services group could isolate its declining outsourcing services business (Tech Foundation division) into a separate legal entity. However, the board of directors would oppose this project. Dissensions that have fueled stock market clearances.

Finally, Elior fell by 18.31%. HSBC downgraded its opinion on the catering group, from “buy” to “keep”, and reduced its price target from 7.50 to 3 euros. The broker claims to perceive a “ plethora of execution risks as the company, which is looking for a new chief executive, says the pace of recovery is slow.


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