The Paris Stock Exchange shows its fifth consecutive decline, the longest series since the end of February, and Wall Street is on the way to follow the movement. The acceleration of inflationary pressures suggests an even more aggressive reaction from central banks in terms of monetary tightening, thus heightening fears of recession.
Around 2:30 p.m., the Bedroom 40 fell again by 1.98% to 6,064.89 points, after a low point at 6,033.06, unprecedented since March 8 (5,903.10). The volume of business totals 1.6 billion euros on the values of the index.
The contracts future June on US indices fell between 2% and 3.2% after posting their steepest weekly decline since the end of January last week. The S&P 500 is on the verge of a bear market, after falling nearly 20% from its January high. Among technology stocks, Alphabet, Apple, Amazon and Microsoft lost between 2% and 4% in the forecourt in New York.
The Fed faces a dilemma
Consumer prices rose by 8.6% year on year in May in the United States, the highest level since December 1981. The statistics dampened hopes of an upcoming peak in inflation and increased pressure on the Federal Reserve two days away from its monetary policy decision. Until last Friday, economists generally expected the announcement of a 50 basis point hike in the Fed funds rate on Wednesday, but some, including strategists at Jefferies, are now anticipating a 75 basis point hike.
” The problem for risky assets is that [la Fed] is faced with a dilemma, and we are faced with two bad choices, summarizes Max Keitner, strategist at HSBC quoted by Bloomberg. For him, or inflation rises for a long time and central banks will have to do more, which would be detrimental to valuations, and ultimately bad for risky assets. Or, if growth slows more than expected, earnings forecasts will have to be lowered. Since Friday, the path to a soft landing has become even narrower “.
On the bond market, the yield on the US 2-year bond, which reflects interest rate expectations, touched 3.2537%, thus briefly rising above that of the maturity at 10 years for the first time since April. This inversion of the curve is generally considered to be the harbinger of a recession.
In Europe, the yield on the German 2-year bond crossed the 1% mark this morning for the first time in more than 10 years. That of the 10-year Bund is trading at 1.5960%, while that of the Italian BTP is tending to 3.9180%. This weighs on European banks while the ECB did not give any indications last Thursday on the tools it intends to implement to support the bonds of so-called peripheral countries in the face of the risk of widening yield spreads . BNP Paribas, Agricultural credit and Societe Generale lose almost 4%.
The European Central Bank signaled last Thursday that it is preparing to raise its key rates by a quarter of a point in July. Another rise is expected in September, and its magnitude will depend on new medium-term inflation projections. If they were to be revised upwards, the ECB would have to decide on a tightening of 50 basis points.
Uncertainties surrounding Valneva’s vaccine candidate
Political risk is also on people’s minds. In France, the results of the first round of legislative elections suggest a fragile majority for the coalition formed around President Emmanuel Macron against the New Union Populaire Ecologiste et Sociale (Nupes) led by Jean-Luc Mélenchon. Together ! would collect between 260 and 300 seats and the Nupes between 170 and 210, according to the projections of Opinion Way. The absolute majority is fixed at 289 deputies out of a total of 377 elected.
Valneva plunges 21%. The biotech reported Friday evening that the preliminary volume indications received from the European Commission would not be sufficient to ensure the sustainability of the Covid-19 vaccine program.
Sensitive to the economic environment, cyclical and technological stocks are following suit. Renault decrease of 4.8%, Faurecia 6.4%, Unibail-Rodamco-Westfield by 4.8% and STMicroelectronics by 4.7%.
in luxury, LVMH, Kering and Hermes drop between 2.6% and 3.3% as the cities of Shanghai and Beijing resumed massive testing in the face of the resumption of the wave of Covid-19 contaminations, reigniting fears of new confinements shortly after a start relaxation of health restrictions.
Atos dip 10%. Much mistrust on the eve of the announcement of its new strategic plan.
against the trend, Thales gains 1.5% after the decision of the Australian government to pay 555 million euros to its subsidiary Naval Group in compensation for the breach of the contract relating to the delivery of 12 submarines. In addition, Goldman Sachs resumed coverage of the stock with a “buy” recommendation to target 146 euros.
Elior gives up 13.7%. HSBC downgraded the collective catering group from “buy” to “keep” and reduced its price target from 7.50 to 3 euros. The broker claims to perceive a “ plethora of execution risks as the company, which is looking for a new chief executive, says the pace of recovery is slow.