The Paris Stock Exchange dropped more than 3% on Monday morning, the rise of geopolitical tensions around Ukraine adding to fears of an imminent tightening of monetary policy by the US Federal Reserve. The quarterly publications of companies in Europe and the United States are thus relegated to the background.
At 9:45 a.m., the Bedroom 40 fell 3.03% to 6.79890 points in a supplied volume of 800 million euros.
On the values side, Air France-KLM give up almost 8%. The airline has decided to suspend flights to Ukraine, reports Reuters citing KLM. Banks are also under pressure due to fears of widening yield spreads on the sovereign debt of eurozone countries. Societe Generale and BNP Paribas yield respectively 6.5% and 5.2%. Same TotalEnergies (-1.7%) fell despite the rise in oil and gas prices linked to the risk of conflict in Ukraine.
Technology and growth stocks considered expensive are also struggling, like worldlin(-4.7%), Kering (-3.2%) and LVMH (-3%).
An imminent invasion
White House National Security Adviser Jake Sullivan ruled over the weekend that an invasion of Ukraine by Russia before the end of the Beijing Olympics on Wednesday and called on U.S. nationals to leave the country immediately. He also said that the United States will protect every square inch of NATO countries. However, US officials were unable to confirm reports that an intervention could take place on Wednesday. Diplomacy has not said its last word. After Emmanuel Macron last week, German Chancellor Olaf Scholz is going to Ukraine on Monday, then to Russia tomorrow.
In this context, yields on bond issues are starting to fall again in a flight to quality movement at the expense of equities. The yield on the 10-year US bond fell to 1.354% after crossing the 2% mark at the end of last week. That of the German Bund of the same maturity relaxes by 10 basis points to 0.1970%.
Bullard and a surprise Fed meeting on the agenda
Markets also fear that the US Federal Reserve will raise interest rates outside of a scheduled meeting of its monetary policy committee (FOMC). Rumors circulated on Friday, fueled by the announcement of a Monday meeting of the Board of Governors, but it seems that it would be a routine meeting, especially since the Fed has repeatedly indicated that would not raise rates until it ended its asset purchase program. However, a press release must be published at the end of this meeting.
Nevertheless, monetary policy will remain at the center of the news with the intervention of several officials this week, including that of James Bullard, the president of the St. Louis Fed, this Monday as part of the program Squawk Box on CNBC at 2:30 p.m. Reputed to be “hawkish”, James Bullard had destabilized the markets by declaring that he expected a rate hike of 100 points by July 1. Frightened, by his own admission, by the surge in inflation to a 40-year high, he also did not rule out tightening outside the scheduled FOMC meetings.
Other Fed officials, such as Mary Daly of the San Francisco branch, were less alarmist, saying a 50 basis point tightening in March could destabilize markets. But a more aggressive Fed stance is already priced in.
The American central bank must also publish Wednesday the “minutes” of the meeting of January 25 and 26 and could give on this occasion indications on the internal debate within the monetary policy committee. But before that, Christine Lagarde will be heard by the European Parliament as part of a debate on the annual report of the European Central Bank. His appearance is scheduled for 5:15 p.m.