The Paris Stock Exchange sank by more than 2% on Monday, faced with the spectacular surge in bond yields against the backdrop of galloping inflation in the United States which raises fears of an amplification of monetary tightening in the coming months.
The star CAC 40 index lost 2.67% to 6,022.32 points. It was still 6,548.78 points at the close on Whit Monday.
After the resurgence of inflation in the United States in May, investors fear that the US Federal Reserve will have an even heavier hand than expected so far in terms of monetary tightening.
They will have their eyes riveted on the announcements that will be made at the end of the meeting of the committee responsible for monetary policy, which is held on Tuesday and Wednesday. Raising its key rates by half a percentage point, or 50 basis points, seems certain, but now the markets are worried about a possible larger increase, of 75 basis points.
With the risk of inflation, what is at stake is the risk of recession by too rapid a phenomenon of rate hikes which would annihilate the resumption of growth, underlines Daniel Larrouturou, equity manager of Dm Finance.
This risk was reflected in the soaring bond yields to critical levels which took the markets by surprise: a rise was expected, but certainly not as rapid and brutal, recognizes the expert.
Italian debt thus saw its 10-year yield exceed 4%, the French borrowing rate for the same chance exceeded 2% and the German Bund stood at 1.63%, a level not seen since 2014.
The overall effect of rising rates is still very unfavorable to the equity market, said Mr. Larrouturou, adding that it was also linked to the end of debt purchases planned for July by the European Central Bank.
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On the values front, no sector was spared except for a handful of survivors like Thales whose share gained 2.10% to 114 euros, while Goldman Sachs anticipates, according to Bloomberg, a period of more visible defense spending. since the 1980s in Europe.
Banks saw Friday’s pullback deepen and fell significantly more than the market.
The most defensive stocks like Danone (+1.08% to 53.22 euros), Pernod Ricard (+0.06% to 174.90 euros) and Orange (+0.91% to 10.90 euros) escaped the slump.