EUROPEAN SCHOLARSHIPS EXPECTED TO FALL
by Marc Angran
PARIS (Reuters) – Major European stock markets are expected to fall on Friday in the wake of Wall Street and Tokyo after statements by Federal Reserve chairman Jerome Powell confirming the scenario of a half-point rate hike in early May and a series of additional bearings afterwards.
Index futures point to a decline of 1.82% for the CAC 40 in Paris, 1.44% for the Dax in Frankfurt, 1.22% for the FTSE 100 in London and 1.71% for the EuroStoxx 50.
A 50 basis point hike in the federal funds (“fed funds”) rate target will be “on the table” at the May 3-4 monetary policy meeting, Jerome Powell said Thursday after the negotiations ended. the market-preferred scenario of a series of increases of half a percentage point in the coming months.
Following these comments, Nomura’s analysts announced they expected a 75 basis point increase in June and then in July, which would be the fastest gain since 1994.
“In the short term, the Fed only seems to be focused on bringing interest rates back to neutral levels of around 2.25%-2.50%,” they explain.
At the same time, the scenario of a first rate hike in July is getting stronger in the eurozone, according to statements by European Central Bank (ECB) officials.
The general environment is therefore unfavorable for equities, especially as the prolonged lockdown in China could fuel inflation in the coming weeks and months, while depressing activity.
In this regard, the first results of the monthly S&P Global PMI surveys expected tomorrow in Europe will be closely studied.
Also on the menu of the day are the results of several major European groups, including SAP, Renault and EssilorLuxottica.
RATE
The Fed’s offensive rhetoric about interest rates continues to fuel US Treasury yields as the 10-year yield, at 2.9317%, is once again approaching the 3% threshold it had stumbled upon at the start of the week. The five-year period crossed this 3% threshold for the first time since the end of 2018, and the two-year period reached a new over three-year high at 2.762%.
In Europe, the German 10-year yield rose more than three basis points in early trading at 0.955% and the two-year quotation was at its highest point since early 2014 at 0.21%. Money markets are now anticipating an 80 basis point rate hike from the European Central Bank (ECB) towards the end of the year.
AT WALL STREET
The New York Stock Exchange ended Thursday in a sharp decline after abandoning its initial gains as statements by Jerome Powell brought rising interest rates back to the forefront of investor concerns.
The Dow Jones index fell 1.05% or 368.03 points to 34,792.76, the Standard & Poor’s 500 lost 65.79 points (-1.48%) to 4,393.66 and the Nasdaq Composite lost 278.41 points (-2.07%) to 13,174.65.
However, all three had started in the green after a string of well-received business results, such as those of Tesla (+3.23%) or multiple airlines.
Jerome Powell’s comments pushed key growth stocks, such as Alphabet (-2.51%) or Amazon (-3.7%).
Futures contracts on the major indices point to a further decline of around 0.2%.
IN ASIA
On the Tokyo Stock Exchange, the Nikkei index ended 1.63% lower, a decline that mainly hit technology and growth stocks.
In China, the major indices, which had been hesitating for most of the session, started rising again after hitting their lowest since mid-March with the Shanghai SSE Composite gaining 0.66% and the CSI 300 0.8%.
CHANGES
The dollar lost some ground against other major currencies (-0.09%) after gaining close to 0.2%, welcoming Jerome Powell’s comments on Thursday.
The euro, in turn, rose to $1.0846 (+0.09%) and is currently showing a weekly gain of around 0.3% after two consecutive weeks of decline.
OIL
The oil market is again suffering from the prospect of a rate hike and fears of continued weakness in Chinese demand, and is headed for a decline of around 4% over the course of the week.
Brent fell 1.08% to $107.16 a barrel and US light crude (West Texas Intermediate, WTI) 1.16% to $102.59.
(Edited by Matthieu Protard)
