Central bank tightening pushes stocks lower – 06/16/2022 at 18:36


EUROPEAN STOCK MARKETS END SIGNIFICANTLY LOWER

by Claude Chendjou

PARIS (Reuters) – European stock markets closed sharply lower on Thursday and Wall Street was also trading in the red mid-session in reaction to accelerating monetary tightening by central banks, led by the U.S. Federal Reserve. The US and Swiss National Bank, which sent bond yields skyrocketing and stocks under pressure, as investors increasingly feared the economy was sinking into recession.

In Paris, the CAC 40 ended down 2.39% to 5,886.24 points, entering the “bear market” zone, with the index showing a contraction of more than 20% from its record on January 5, closing at 7,376.37 points. The British Footsie, meanwhile, lost 3.08% and the German Dax 3.31%.

The EuroStoxx 50 index fell 2.74%, the FTSEurofirst 300 2.2% and the Stoxx 600 2.31%.

After the US Federal Reserve (Fed) rate hike of 75 basis points on Wednesday night, the Swiss National Bank (SNB) surprised on Thursday by raising its reference rate for the first time in 15 years at 50 basis points.

The two central banks have also clearly indicated that further hikes could come in the coming months to curb inflation which has reached a record level.

While the SNB maintained its growth forecast for the Swiss economy this year at around 2.5%, the Fed said it expects an economic slowdown and rising unemployment in the United States in the coming months.

The Bank of England (BoE), for its part, announced this Thursday a rise of a quarter of a point in its reference rate, its fifth rise since last December, assuring that it would act “strongly” if necessary in the face of inflation risks. .

In the euro zone, money markets are now forecasting a 190 basis point hike in rates from the European Central Bank (ECB) for December, versus a forecast of 140 points on Wednesday.

The latest tightening by central banks fueled nervousness and volatility in the markets, with the CBOE index in the United States moving well above 30 points, as did its European equivalent, which ended up 8% higher in 32.5 points.

“The Fed is now painting a central scenario that is much closer to a hard landing,” Deutsche Bank strategist Jim Reid said in a note.

Wells Fargo analysts, for their part, have estimated that the probability of a recession in the United States is already over 50%.

VALUES IN EUROPE

In Europe, all major sectors ended in the red, with retail suffering one of the largest contractions following the ASOS warning. The British online fashion group, which plunged 32.4%, reported a significant rise in customer item returns amid strong inflationary pressures.

Its competitors Zalando and Boohoo fell 12.4% and 11.2% respectively.

The basic resources (-3%) and energy (-3.4%) compartments also suffered amid supply fears, with Engie (-7.2%) saying on Wednesday that it had seen a decline in deliveries of gas after the new restrictions on exports decided by Russia.

TotalEnergies lost 2.9%, the German group Uniper 9.7% and the Austrian OMV 6.2%.

The new technology sector (-4.4%), sensitive to rate changes, suffers the biggest drop in the Stoxx 600 with Capgemini down 2.01%, SAP down 1.3% and ASML down 6.4% .

On the upside, Euronext took 1.5%, thanks to JPMorgan’s recommendation to raise the stock to “overweight”.

ON WALL STREET

At the close in Europe, the Dow Jones was down 2.3%, falling for the first time since January 2021 below 30,000 points. The Standard & Poor’s 500, which fell in a bear market, lost 3% and the Nasdaq 3.6%, the two indices headed for their 10th weekly decline in 11 weeks.

All major S&P-500 sectors were in the red, with energy (-4.4%) and consumer spending (-4.1%) posting some of the biggest declines.

Growth stocks were also sloppy: Apple lost 3.5%, Microsoft 2.6% and Nvidia 5.2%, while the new technology sector index fell 3.8%.

Tesla fell 6.4% after the group announced a new increase in the price of its cars due to inflation.

THE INDICATORS OF THE DAY

Jobless claims in the United States fell less than expected last week, to 229,000, while business conditions in the Philadelphia area deteriorated again in June, with a “Philly Fed” index falling to -3.3.

SPEED

The unexpected rate hike by the Swiss National Bank supported bond yields in Europe, and some analysts believe that the ECB will now be even more aggressive in its monetary policy.

The ten-year German Bund rate ended with a rise of five basis points, at 1.693%, after reaching 1.812% in the session, its highest level since 2014, and the two-year rate, the most sensitive to rate changes, soared eight points to 1,132% after reaching 1,261% in the session, a peak since 2011.

The French 10-year OAT yield rose four points to 2.258%, while its Italian equivalent of the same maturity topped 4% on the session before falling to 3.853% at the close.

In Britain, the two-year Gilt yield gained 31.5 basis points on the session to 2.274%, its biggest rise since the 2008-2009 financial crisis, in reaction to the Bank of England’s announcement that it was ready to act. “hard” in the face of inflation. The decade ended with a 3.8 point gain to 2.506% after hitting a high since July 2014 at 2.745%.

In the United States, the yield on the ten-year Treasury bonds, which rose during the session to 3.438%, and the two-year yield to 3.355%, fell 7.5 points and 10.6 points, respectively, at the close in Europe.

CHANGES

The Swiss franc, buoyed by the SNB announcements, hit a two-month high against the euro at 1.0200 (+1.8%) and almost a one-month high against the dollar at 0.9807 (+1.4%).

The euro rose 0.61% to $1.0506.

The index that measures the fluctuations of the dollar against a basket of reference currencies, which on Wednesday had reached a maximum of 20 years before the Fed’s announcements, fell 0.96% this Thursday, the rise of 75 basic points of rates in the United States is not a surprise.

OIL

Oil prices, which fell to a two-week low in the session, are volatile, with investors grappling with fears of a recession on the back of sharply rising interest rates and supply strains.

Brent nibbled 0.09% to $118.64 a barrel and American light crude (West Texas Intermediate, WTI) 0.52% to $116.02 a barrel at the close of European stock markets.

(Written by Claude Chendjou, edited by Sophie Louet)

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