The sell-off continues, both in Paris and on Wall Street, with rising tensions around Ukraine weighing on investor sentiment on the eve of a two-day meeting of the Fed’s monetary policy committee. The markets will thus be able to measure the determination of the American central bank to act in an attempt to curb inflation.
For now, a hike of at least a quarter point in the Fed funds rate in March is fully priced in and others should follow. Technology stocks and those related to leisure travel are the most affected at European level, with declines of more than 5% for the associated Stoxx 600. In Paris, Capgemini 6.8% drop, Worldline by 7.2%, STMicroelectronics by 5.7% and Air France-KLM loses 4.2%. At New York, Apple and Microsoft yield around 2%. The two first American capitalizations must publish their quarterly results this week. You’re herewho also has to comply with the exercise, gives up more than 5%.
At 4:15 p.m., the Bedroom 40 unscrewed by 4.13% to 6,777 points, after a floor at 6,754.24, unprecedented since December 20, in an expanded business volume of 3.7 billion euros. In New York, the Dow Jones loses 2.06% and the Nasdaq Compositeand 2.76%. The S&P 500 and the tech stock index have already had their worst week since March 2020 and the start of the pandemic. The Vix index, which measures the underlying volatility of the S&P 500, rose above 30 points on Monday, a level from which it is supposed to suggest a strong market correction.
Monetary tightening at every meeting
The Fed is expected to anchor expectations of key rate hikes and the end of its asset purchases on Wednesday. Goldman Sachs economists fear that the Federal Reserve will be more aggressive than the big Wall Street banks anticipate. They expect rate hikes in March, June, September and December and a reduction in its balance sheet in July. “We see a risk that the FOMC decides to tighten its policy at each meeting until the perception changesthey write, adding that this reinforces the possibility of a rate hike at every meeting or an earlier-than-expected balance sheet announcement in May “.
Michael Wilson, a strategist at Morgan Stanley, believes tech stocks have been overvalued during the pandemic. The selloff is “ makes sense to us, not because the Fed is changing direction, but because these kinds of valuations don’t make sense in any investment environment “, he explains, adding that the markets have not fully priced in the risk of decelerating growth.
Hopes of slowing inflation dashed
Activity slowed in the private sector in January, both in the United States and in the euro zone, according to flash indices compiled by IHS Markit. On the other side of the Atlantic, the movement is particularly noticeable in industry and in services with indices at 7.7 points at 55 and 6.7 points at 50.9 respectively, the Omicron wave having exacerbated delivery times and shortages of workforce.
On the Old Continent, the easing of tensions on supplies has certainly allowed the manufacturing sector to rebound in the euro zone, but the outbreak of contaminations at Omicron has slowed down that of services. The composite index (synthesis between industry and services) established by IHS Markit fell by 0.9 points to 52.4 points in the first estimate, its lowest level since last February. In detail, the manufacturing component rose by 1 point to 59, while that of services fell by 1.9 points to 51.2.
Saint-Gobain red lantern of the Cac 40
The macroeconomic agenda for the week is also loaded with the first estimates of fourth quarter GDP in Europe and the United States, and the PCE index of US household spending, the measure of inflation most watched by the Fed.
Geopolitically, the State Department has called on Americans to leave Ukraine immediately as Moscow is massing more and more troops on the border between the two countries. Washington has also ordered the families of its embassy staff in Kiev to leave Ukraine because of ” the threat of Russian military action “. European Union foreign ministers are due to discuss the situation in Ukraine with US Secretary of State Anthony Blinken on Monday.
One and only rise in the Cac 40, Orange gains 1.1%. Christel Heydemann, current executive vice-president for Europe of Schneider Electric, should be appointed Friday as general manager of the operator, reports AFP. After the withdrawal of Frank Boulben’s candidacy, Christel Heydemann is the favorite and enjoys the support of the State, which holds around 23% of the capital of Orange.
Orpea fell nearly 20% before being suspended from trading at the company’s request pending a statement. At the origin of this stall, a book to be published on Wednesday and entitled ” The Gravediggers: Revelations About the System That Abuses Our Elders “. In its wake, Korian plunged by 11.8%.
Up this morning crossroads plaice of 2.5%. If speculation about a merger with Auchan continues, Bernstein, who remains “underperforming” on the title, believes that a marriage may come up against competition authorities who may require many store sales before to give its endorsement.
Major cyclicals are under pressure, weighed down by fears of soaring energy prices if Russian troops enter Ukraine. ArcelorMittal loose 7.7% and Alstom 3.8%. Saint Gobain fell for its part by 8.6%, in the wake of the fall of more than 10% of the Irish Kingspan following the British government’s plan to ban the sale of flammable insulation in the United Kingdom after the Grenfell Tower fire in London in 2017.
Profit taking continues on luxury stocks. Hermes, Kering and LVMH yield more than 4%.
EDF down 3.5%. Bernstein downgraded the value from “outperformance” to “in-line performance” and reduced its price target from 14.50 to 8.50 euros.