The semester that has just ended goes down in history as the third worst first semester of the Cac 40 (-17.2% against -17.43% in the first half of 2020 and -21% at the end of June 2008). The index lost 1.8% today to 5,922.86 points, down almost 20% from its record high in early January. Those who were still wondering whether the sharp rise of 3% in the Cac 40 on Friday was to be attributed to what is called on the stock market the “rebound of the dead cat”, that is to say say a rebound in a bear market, today have their answer.
Recession fears have intensified further in recent days in the light of the latest figures published and the determination of central bankers – confirmed yesterday – to raise interest rates despite the risks of recession. Investors are scared “that the ongoing rate hikes to deal with inflation will not end up leading to a recession, and this theme continued yesterday, Fed Chairman Powell, ECB President Ms Lagarde, and BoE Governor Bailey all reaffirmed their intention to bring inflation back to target during a panel at the ECB Forum”, explains Jim Reid, strategist at Deutsche Bank. Until Wednesday evening was held in Sintra, Portugal, the annual symposium of the European Central Bank.
Inflation hits new stock market record
Yesterday, US Chief Central Banker Jerome Powell admitted there was a risk the Fed could go too far in raising rates, throwing a stronger-than-desired chill on economic activity , but that this risk was not the most important. The worst-case scenario for the economy would be for the central bank to fail to restore price stability.
Jerome Powell and Christine Lagarde also warned yesterday against the increased risks linked to inflation which promises to be permanently high, thus preparing investors for times ” sore “. In France, the rise in consumer prices reached a new record this month, at 6.5% over one year in preliminary harmonized data from the European Union, which allows comparisons with other countries. Although, according to figures published yesterday, Germany has experienced a temporary respite from inflation (thanks to two government measures: the reduction of the fuel tax and the introduction of a transport ticket at reduced price), the inflation statistics for the euro zone as a whole, which will be published tomorrow, should also come out at new highs (at 8.5% over one year, according to the Bloomberg consensus economists). In Spain, the figures published yesterday showed that inflation in harmonized data had reached 10% this month (+1.5 points compared to May).
Energy dependence on Russia is one of the main causes of the inflation shock in Europe. Today, the price of contracts forward one month of gas for the European reference (Rotterdam Stock Exchange) returned to their extraordinary levels of three months ago, at more than 149 euros per megawatt hour (+8% almost), after already an increase of more than 6% yesterday following a compressor failure in the Norwegian field of Martin Linge which cut production, in an already complicated supply context, Russia reducing its deliveries in retaliation for sanctions. The German gas and electricity supplier Uniper (-14% on the Frankfurt Stock Exchange) said today that it had received only 40% of the gas volumes agreed by contract from Gazprom. Because of this situation, the group, in difficulty, is forced to buy at exorbitant prices the capacities it needs to supply its customers.
Banks tested on the recession
The European Central Bank is expected to raise interest rates for the first time in eleven years in July. Even though recession is not the central scenario for the ECB, the banking supervisor, responsible for ensuring the soundness of credit institutions, nevertheless announced today that commercial banks would have to factor in this risk to calculate their solidity. A bank that is too fragile will not be able to pay a dividend. Societe Generalethe most fragile of French banks, fell by more than 6%.
Overall, the companies most sensitive to the state of the economy are those that suffer the most on the stock market. Renault again dropped almost 3%. Those heavily in debt, such as Alstom (-8%), also plunged.