The Cac 40 in the red, the war in Ukraine accentuates fears about growth


After a long four-day weekend, the Paris Stock Exchange reopened down. The decline deepened as the session progressed, so that the Bedroom 40 ended the day contracting 0.83% to 6,534.79 points, after a low of 6,494.33 points. The business volume totals 3.5 billion euros.

Reasons to be careful

Investors have more than one reason to be cautious. The same causes causing the same consequences, they continue to worry about the outcome of the presidential election in France, the consequences of high inflation and the war in Ukraine, while the Russian forces have triggered, in the night from Monday to Tuesday, their offensive against eastern Ukraine, in the Donbass region. kyiv claims Moscow has taken control of the Kreminna, which is in the eastern Luhansk region. For the financial markets, there is no doubt: the conflict is here to stay. And, with it, prices will continue to climb or, in the best of scenarios, stabilize at high levels. In the euro zone, the rise in prices reached 7.5% over one year in March, driven by energy (+44%). In the United States, it peaks at 8.5%, a new record since December 1981. All the lines are at their highest. Over one year, the price of gasoline has jumped by 48% and that of food by 8.8%.

Hardening

This surge is pushing central bankers to tighten their monetary policy. This is already the case in Canada, Brazil, New Zealand and the United States, where the process of raising interest rates, already underway, will continue with greater vigor in the months to come. The prospect of an acceleration in monetary tightening pushes the yield on 30-year Treasuries to 3% for the first time since the start of 2019 and that of ten-years a peak since December 2018 at 2.93%.

For the next meetings of the US Federal Reserve (Fed) committee in May and June, a 50 basis point hike in the interest rate Fed-funds is expected, but James Bullardfrom the St. Louis branch, would not like to go further to counter inflation and raise the rate of Fed-funds of 75 basis points. This hypothesis should not be ruled out, even if it is not the most probable. For James Bullard, interest rates must settle at 3.5% by the end of the year. The Fed’s Beige Book, which will be published on Wednesday at 8:00 p.m. (Paris time), should provide valuable qualitative indications on the impact of inflationary pressures on the US economy and its resilience. According to Goldman Sachs experts, the probability of a recession within two years in the United States is around 35%.

Globally, the World Bank has cut its forecast for global economic growth to 3.2% this year, from 4.1% previously, due to the anticipated impact of the conflict in Ukraine on prices. energy and food raw materials. Ditto for the International Monetary Fund (IMF), which is targeting 3.6% global growth in 2022 as in 2023, i.e. 0.8 percentage point less than forecast in January for this year and 0.2 point less for l next year.

The BPoC at the bedside of the economy

Faced with the slowdown, induced in large part by the confinement implemented in several major cities of the country, the People’s Bank of China (BPoC) announced new measures to support the economy, including a cut of a quarter of a point the bank reserve requirement ratio. ” The PMI surveys indicate a marked deterioration in the Chinese economy in March. If we take the average of the indices calculated by Caixin and by the National Bureau of Statistics of China, the PMI for services fell from 50.4 to 44.4. The manufacturing PMI fell less, from 50.3 to 48.8, remind the experts of Lazard Frères Gestion. The Chinese government does not seem to want to deviate from its ‘zero Covid’ policy despite the high contagiousness of the Omicron variant, raising the question of a sharp slowdown in growth in the coming months. Frequently updated data (mobility, transport, real estate transactions, etc.) show that activity remains very disrupted at the start of the second quarter, in a context where a growing number of cities are subject to restrictions. In mid-April, 45 cities implemented total or partial containment, affecting nearly 373 million people, or a quarter of the population and more than 40% of Chinese GDP. ” This environment poses a significant threat to the government’s growth target which has been set at around 5.5% concludes Lazard Frères Gestion.

Luxury loses luster

Questions about Chinese growth weigh on the luxury sector, heavily weighted by the Cac 40. Hermes dropped 3.62% while the cosmetics giant L’Orealwhich must reveal its quarterly turnover after the close of trading, dropped 2.9%.

Sanctioned, the reinsurer score fell 5.2% after announcing that its first quarter results will be impacted by the war in Ukraine, with a double-digit charge in millions of euros related to potential claims caused by the conflict. As the conflict drags on, the automaker Stellantis (+2.41%) announced the suspension of its production in Russia due to “ logistical difficulties stemming from Western sanctions against Russia.

Conversely, Virbac won 9.93%. The veterinary laboratory widened its annual growth forecast range after a better than expected first quarter. As good news never comes alone, Oddo BHF raised its recommendation on the stock from “neutral” to “outperforming”.

Among analysts’ recommendations, HSBC downgraded the title of the operator of the Channel Tunnel getlink (-1.32%) from “buy” to “keep”, Deutsche Bank downgraded its opinion on the collective catering group Elior (+0.85%) from “buy” to “hold” and Berenberg went from “hold” to “buy” on Crossroads (+2.03%). The broker believes that inflation is a challenge for the food retail industry, but will shine a light on the top performers. The French group is well placed in such an environment, says the broker.




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