THE IMPORTANT EUROPEAN SCHOLARSHIPS ARE EXPECTED TO FALL
by Marc Angran
PARIS (Reuters) – Major European stock markets are expected to fall on Wednesday in the wake of Wall Street and Tokyo, following the latest statements by United States Federal Reserve officials who expressed fears of a rapid monetary policy tightening in the United States weighs on growth and fuels the rise in bond yields and the dollar.
Index futures suggest a 0.41% decline for the CAC 40 in Paris, 0.17% for the Dax in Frankfurt and 0.16% for the EuroStoxx 50, while the FTSE 100 in London is expected to be virtually unchanged.
Fed Governor Lael Brainard, considered moderate, said Tuesday that he expected the central bank to return to a “more neutral” monetary policy by the end of this year with a combination of rate hikes and a rapid balance sheet cut.
His statements bolstered the scenario of several federal fund rate hikes by half a point (“fed funds”) during the next Fed meetings to curb inflation.
For Kristina Hooper, head of market strategy at Invesco, “it must have a negative effect on equities because it increases the chances of a recession. The Fed, if it becomes offensive, will find it increasingly difficult to make a soft landing.”
For her part, Mary Daly, the president of the San Francisco Fed, said she doesn’t expect a recession at this stage, even if the economy could approach one.
In this context, investors will carefully study the minutes of the US Central Bank meeting in March, which will be published at 18:00 GMT.
Another cause for concern for investors: the impact of the new wave of the COVID-19 epidemic in China on the economy, marked by the decline in the Caixin index of activity in services to 42.0 in March from 50.2 in February.
In Europe, the first indicator of the day is hardly more encouraging, as it shows a much stronger than expected drop in February (-2.2%) in industrial orders in Germany.
US Treasury yields continue to rise, to their highest since the start of 2019 for the two-year at 2.5674% (+6.3 basis points), since December 2018 for the five-year at 2.7618% (+5.5 points) and since March 2019 for the ten-year 2.6069% (+6.5 points).
Lael Brainard’s speech about the Fed’s rate hike and balance sheet contraction, coupled with massive central bank divestments in the coming months, only fuels the selling tide.
In Europe, the rise is weakening: the 10-year-old German falls just over a point to 0.626% and remains below its highest point of last week.
The prospect of a US monetary policy tightening is also beneficial for the appreciation of the dollar, which is at its highest point since May 2020 against a basket of reference currencies, gaining another 0.28% after jumping from 0 .5% on Tuesday.
The euro, on the other hand, suffered, dropping below $1.09 for the first time in three weeks.
AT WALL STREET
The New York Stock Exchange ended sharply lower on Tuesday, weighed down by technology stocks suffering from comments from the Fed about possible aggressive measures to contain inflation.
The Dow Jones index fell 0.8% or 280.7 points to 34,641.18, the Standard & Poor’s 500 lost 57.52 points (-1.26%) to 4,525.12 and the Nasdaq Composite lost 328.39 points (-2.26%) to 14,204.17, the largest percentage drop a month in a session.
Among the tech sector heavyweights, sensitive to expectations of rate hikes, Apple lost 1.89% and Amazon 2.55%.
Going against the trend, Twitter gained another 2% the day after a 27.1% jump after announcing the imminent board membership of Elon Musk, Tesla boss who became its first shareholder.
Futures suggest a slightly lower open for now.
On the Tokyo Stock Exchange, the Nikkei index ended the day up 1.58% to 27,350.30 points, as prospects of monetary tightening in the United States weighed on investor sentiment.
In China, where markets remained closed Monday and Tuesday, the trend is more affected by concerns about the new wave of the COVID-19 epidemic and contraction in services.
The Shanghai SSE Composite lost 0.19% and the CSI 300 0.53%.
The oil market is hesitant in anticipation of firm decisions on possible new Western sanctions against Russia that could reduce global supply.
This factor, likely to support prices, is being countered by several downside factors, be it the rise in the dollar, the rise in crude oil inventories in the United States (+1.1 million barrels last week according to the American Petroleum Institute quoted by market sources) ) or the expansion of the containment in Shanghai.
Brent gained 0.42% to USD 107.09 a barrel and US light crude (West Texas Intermediate, WTI) 0.24% to USD 102.20.
(with Lewis Krauskopf in New York)