Traditionally critical for the financial markets, the month of May is off to a bad start on the Paris Stock Exchange. The stagnation of manufacturing activity in the euro zone is in fact added to a new contraction in China and a slowdown in growth in the United States, thus heightening fears about the outlook for the world economy.
Shortly after 4 p.m., the Bedroom 40 lost 1.65% to 6,425.87 points in a limited business volume of 2 billion euros due to the closure of the British and Chinese markets. The index briefly suffered a “flash crash” and fell 3.44% to 6,308.47, led by a panic movement which affected the markets of Northern Europe following a probable error in the transmission of an order.
In New York, the Dow Jones yields 0.21% and the Nasdaq Composite 0.30%. On Friday, the index of technology and growth stocks completed its worst month since 2008. Activision Blizzard increased by 2.7%. Warren Buffett announced to his shareholders on Saturday that he had raised his stake in the video game publisher to 9.5%. Apple drops 1% as European competition authorities have accused the group of obstructing competition over the exclusive use of the NFC contactless chip integrated into its iPhones, which could lead to a large fine and an obligation for Apple to open up its mobile payment system to rivals.
Activity contracts in China, stagnates in Europe and slows in the United States
The PMI index published by S&P Global stood at 55.5 points within the Nineteen in April, a 15-month low, while selling prices rose to a record high. ” Eurozone manufacturing activity nearly stagnated in April as output recorded its weakest expansion since June 2020,” notes Chris Williamson, chief economist at S&P Global.
He adds that “Companies surveyed not only reported worsening supply tensions, exacerbated by the war in Ukraine and new health restrictions imposed in China, but also highlighted the impact of price increases and rising uncertainty over economic outlook on the level of demand “.
Across the Atlantic, the manufacturing index published by the Institute for Supply Management (ISM) fell by 1.7 points to 55.4 in April, its lowest level since August 2020. The sub-index of prices paid has certainly decreased, but the figure remains high above 80 while inflation reached 8.5% over one year in March, a level not seen in 40 years.
In China, the official manufacturing PMI index fell 2.1 points to 47.4 last month, thus emerging below the critical threshold of 50 points, which separates expansion and contraction, for the second consecutive month. The Caixin manufacturing PMI also fell to 46 points, after 48.1 in March. The health constraints that block several cities and many companies in the country do not give hope of rapid improvement.
The Fed expected on its rates as well as on its balance sheet
Markets are nervous two days before the Fed’s monetary decision, which should raise the federal funds rate by 50 basis points, the highest level since 2000. The Federal Reserve should also announce its intentions in terms of reducing the amount of its balance sheet. The more aggressive tone adopted by several central bank officials suggests other major gestures to stem the inflationary spiral. According to CME Group’s FedWatch tool, the market expects the Fed Funds rate to return to 3% or even above by the end of the year. In the bond market, the yield on the US 10-year TIPS bond, adjusted for inflation, touched 0.5%, its highest level since March 2020.
The European Central Bank could also raise its tone. Vice-President Luis de Guindos has indeed indicated that the ECB could decide to interrupt asset purchases in July, prior to a future rate hike. This will depend on the central bank’s new economic projections, which will be released in June.
Cyclicals and growth stocks struggling
In addition to a higher cost of credit, the tightening of monetary policies raises the specter of recession, especially as price pressures are fueled by the surge in raw materials linked to the war in Ukraine. These could also intensify as the European Union is expected to try to agree this week on the implementation of progressive restrictions on Russian oil imports, which could lead to an embargo towards the end of the year. year, reports Bloomberg, citing sources familiar with the discussions. The barrel of Brent from the North Sea fell by almost 3% to 103.42 dollars, thus weighing on TotalEnergys (-0.4%) and Vallourec (-3.3%).
Cyclical stocks are particularly affected by the deterioration of the economic environment. Alstom loses 2%, ArcelorMittal 3.5% and Great 2.3%.
Automakers fell in the wake of the 22.6% drop in new car registrations in France last month, as supplies from European manufacturers remained affected by the war in Ukraine. Renault yields 1.5% and Stellantis 3.3%. same for me Faurecia and Valeo which lose 2.7% and 3.5% respectively.
Among technology stocks, STMicroelectronics decrease of 3.2%, Soitec by 5.2% and Capgemini by 2.8%.
At other growth values, Kering loses 2.3%, Hermes 3.4% and LVMH 2%.
Casino plaice by 4.3%. Citi lowered its target price on the title of the distributor from 27 to 17 euros. Pointing to the uncertainties linked to the rescue plan of the parent company Rallye, the broker reaffirmed its recommendation of “neutral” on Casino.
Conversely, Crossroads gain 1%. Canadian Alimentation Couche-Tard and British EG Group are discussing a merger to create a global champion of convenience stores and gas stations, reports Dow Jones, citing sources familiar with the matter. The Canadian group had tried in early 2021 to buy Carrefour, an operation which had been refused by Bercy.