by Laetitia Volga
PARIS (Reuters) – European stock markets ended sharply lower on Friday after strong remarks by the Chairman of the Federal Reserve (Fed) which cast a chill over the prospect of a slowdown in monetary tightening in the United States.
Another unfavorable factor for equities, the echoes from the European Central Bank are also leaning resolutely on the ‘hawkish’ side. Five sources told Reuters that several officials at the Frankfurt institution want to debate a 75 basis point hike in policy rates the next month given the deteriorating outlook for inflation and despite recession risks.
In Paris, the CAC 40 lost 1.68% to 6,274.26 points. The British Footsie lost 0.7% and the German Dax lost 2.26%.
The EuroStoxx 50 index fell by 1.93%, the FTSEurofirst 300 by 1.68% and the Stoxx 600 by 1.68%.
At the time of the European close, Wall Street was also in the red: the Standard & Poor’s 500 index, a benchmark for many investors, lost 1.88% while the Dow Jones fell by 1.57% and the Nasdaq by 2, 43%.
On the occasion of the symposium of central banks in Jackson Hole, Jerome Powell, declared that a restrictive monetary policy will be necessary “for a while” before inflation is brought under control, which will not be without difficulty for the households, businesses and economic growth.
Jerome Powell gave no indication what might be decided at the September meeting but interest rate futures suggest a 56.5% chance of another 75 basis point rate hike , against 46.5% before the Fed Chairman spoke.
The latter also put into perspective the announcement at the beginning of the afternoon of a slowdown in the PCE consumer price index in July, reaffirming that the improvement of a single month is insufficient to be convinced of a decline in inflation.
“The Fed doesn’t like the fact that the market is already pricing in rate cuts, they want people to believe they’re going to tighten and tighten until the pipe creaks…it could be that the market realizes that the Fed isn’t behind it and won’t be until the data changes,” said Markets.com analyst Neil Wilson.
VALUES
On the stock market, all European sectors ended in the red. As for individual values, the video game publisher Ubisoft took 3.39% in the wake of its American competitor Electronic Arts (EA) (+5.13%), which is taking advantage of speculation on the possibility that Amazon is trying to buy it back.
RATES/EXCHANGES
Reuters information on the ECB has logically supported government bond yields in the euro zone: that of the German 10-year Bund has gained more than seven basis points around 1.398% after a peak in session since the end of June at 1.435 %.
For the same reason, the euro advanced 0.36% to 1.001 dollar.
Money markets are pricing in an ECB rate hike of 62 basis points in September versus 56 basis points previously.
The dollar was virtually unchanged (-0.03%) against a basket of benchmark currencies and the yield on ten-year Treasuries fell slightly, to 3.013%.
THE INDICATORS OF THE DAY
As for the statistics published in Europe, the German consumer morale index, calculated by the GfK institute, deteriorated again to fall to its lowest level as September approaches, while households are anticipating a soaring energy bills. In France, on the other hand, consumer confidence rose unexpectedly in August.
OIL
On the oil market, prices are on the rise again despite Jerome Powell’s remarks concerning the necessary economic slowdown in the face of inflation.
Brent rose 0.47% to 99.81 dollars a barrel and US light crude (West Texas Intermediate, WTI) 0.16% to 92.67 dollars.
(Written by Laetitia Volga, edited by)