Paris and the other European markets confirm their initial rebound while the ECB has indicated that it is considering the creation of a new tool intended to avoid fragmentation in the euro zone. The European Central Bank announced this morning the holding of an unscheduled meeting of its Board of Governors on Wednesday to discuss current market conditions. This meeting was decided at a time when the spreads (yield differences) between the government bonds of the various countries in the euro zone have recently widened, in particular between Germany and Italy.
Around 2:30 p.m., the Bedroom 40 rebounded 0.96% to 6,006.73 points in a business volume of 1.35 billion euros. In Milan, the FTSE MIB increased by 2.12%. The contracts future June on US indices gain between 0.7% and 0.9%.
The ECB prepares a safety net
European Central Bank officials discussed a strategy to protect the integrity of the euro zone and promised on Wednesday to flexibly reinvest the maturities of the bond portfolio it has built up since 2020. The Board of Governors decided that it would flexibly implement the reinvestment of future maturities of the PEPP portfolio [programme d’achats d’urgence face à la pandémie]), in order to preserve the functioning of the monetary policy transmission mechanism “Said the ECB in a press release. The council also mandated the competent services of the Eurosystem as well as those of the central bank to accelerate the development of an instrument to prevent fragmentation, the statement added.
The recent surge in bond yields within the so-called peripheral countries follows the absence of any concrete announcement from the European Central Bank concerning new tools intended to avoid fragmentation within the countries of the euro zone while the ECB confirmed last Thursday the end of its asset purchases at the end of the month and prepared the market for a 25 basis point hike in its main key rates at its July meeting.
The yield on the Italian 10-year bond, which crossed the 4% mark this week for the first time since 2014, in the midst of the debt crisis, eased by 37 basis points to 3.79%, bringing the spread with Germany at 2.2%, against more than 2.4% the day before. The banks’ Stoxx 600 posted the best sector performance in Europe with a gain of 3%. In Paris, BNP Paribas, Agricultural credit and Societe Generale show increases of between 2% and 3%.
An integrated 75 basis point hike
The market is also wondering about the extent of the next monetary hike by the Fed, whose decision is expected in the evening, with the fear in sight that too heavy a hand could lead to a recession.
From an increase of 50 basis points at the end of last week, expectations have risen in light of the surprise surge in inflation, now at its highest since the end of 1981 in the United States. The market seems to have fully priced in a 75 basis point hike, which would be the highest since 1994.
” If the Fed surprises with a 50 basis point hike, the market will certainly opt for a relief bounce. But the Fed’s primary objective is to curb inflation now, not to boost equity markets. And depressed equity markets seem necessary to achieve this goal. Now that the pill of a 75 basis point hike has been swallowed by the market, it would be irrational for the Fed not to follow up with a bigger hike. writes Ipek Ozkardeskaya of Swissquote in a note.
The yield on the two-year US bond is hovering around 3.37% after hitting 3.456%, its highest level since 2007, while that of the 10-year maturity is trading at 3.39%. US treasury bills serve as a global benchmark, thus financial conditions are tightening across the planet, which is putting strong pressure on consumer purchasing power, especially in emerging countries, which borrow in dollars. .
All options are open for EDF
EDF advance of 3.4%. ” All options are on the table” when it comes to the electrician’s future84% controlled by the State, declared on BFM TV the French Minister of Economy and Finance, Bruno Le Maire, when asked about a possible nationalization of the group.
Luxury stocks are recovering in the wake of the announcement of better than expected indicators in China, one of the main markets for the sector. Kering notably garners 2%. Jefferies raised its recommendation on the title of the parent company of Gucci from “hold” to “buy” while reducing its target price from 695 to 605 euros.
Biggest rise in SRD, Faurecia gets 6.5%. Stifel analysts point out that once the obstacle of the capital increase linked to the takeover of Hella has passed, investors can focus on disposals. The broker is “buying” on the stock. Valeo follows with a gain of 5.4%.
Conversely, Atos loses another 5.2% after falling more than 23% yesterday. Invest Securities downgraded the stock from “buy” to “neutral”.
Finally, Volatalia gives up 6.7%. Oddo BHF, which is questioning the prospects for growth beyond 2023 due to lack of visibility, lowered its recommendation from “outperformance” to “neutral” on the action of the producer of electricity from renewable energies.