After six consecutive sessions of decline, the Paris Stock Exchange is holding its rebound after the announcement by the ECB that it is considering the creation of a new tool intended to avoid fragmentation in the euro zone. The central bank announced this morning an unscheduled meeting of its board of governors 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.
Shortly after 4 p.m., the Bedroom 40 rebounded 1.81% to 6,057.48 points in a business volume of 1.8 billion euros. In Milan, the FTSE MIB increased by 3.14%. In New York, the Dow Jones earns 1.20% and the Nasdaq Composite 1.79%.
The ECB prepares a safety net
European Central Bank officials discussed a late morning strategy to protect the integrity of the euro zone and promised 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 published at the start of the afternoon. 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 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 34 basis points to 3.76%, 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 2.6% and 3.7%.
Economists not convinced
Economists, however, are skeptical of the ECB’s announcements. The statement ” didn’t go so far as to reveal a detailed anti-spread tool that could provide a permanent solution to the problemunderlines Jack Reynolds of Capital Economics. Flexible reinvestments within the PEPP might buy ECB officials some time, but the ‘new anti-fragmentation instrument’ on which the bank is working will have to go much further. And there is no guarantee that they will reach consensus on such a tool at the next meeting in July. So we could see spreads strengthening before a new tool is put in place “, he warns.
Bond yields in the so-called peripheral countries have recently soared in the absence of any concrete announcement from the ECB concerning new tools intended to avoid fragmentation, while the central bank 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 key policy rates at its July meeting.
An increase of 75 basis points endorsed?
As for the Fed, the market seems to have priced in the prospect of a 75 basis point hike in the federal funds rate, which would be unprecedented since 1994, against 50 basis points at the end of last week, just before the announcement of a surge in inflation, now at its highest since the end of 1981 in the United States.
” 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 3.28% after hitting 3.456%, its highest level since 2007, while that of the 10-year maturity is trading at 3.38%. 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. .
Faurecia boosted by a note from Stifel
EDF advance of 5.5%. ” 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 3.1%. 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.
Faurecia takes 6.1%. 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%.
Finally, Voltalia gives up 5.8%. 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.