Cautious recovery in sight in Europe, Powell curbing enthusiasm – 05/18/2022 at 08:42


CAREFUL RISE IN EUROPE, POWELL HOLDS ENTHUSIASM

PARIS (Reuters) – Major European stock markets are expected to edge up slightly on Wednesday, even as caution appears to be slowly taking over after relief from China’s improved health and apparent good health the day before. American economy.

Index futures are up 0.27% for the CAC 40 in Paris, 0.12% for the Dax in Frankfurt, 0.06% for the FTSE 100 in London and 0.13% for the EuroStoxx 50.

The Paris market gained 1.3% on Tuesday and the broad European Stoxx 600 index added 1.22%, the third consecutive gain after the announcement of a gradual lifting of health restrictions in Shanghai and well-received US retail sales data.

These two factors contributed to a renewed interest in risky assets, which led to a marked increase in stocks and a fall in the dollar.

But this movement remains fragile, in part due to ongoing concerns about rising prices and rapidly rising interest rates from major central banks.

“After falling last week, stocks could see a short-term rebound,” said Shane Oliver, chief economist and head of investment strategy at AMP Capital. “But the risks associated with inflation, monetary tightening, the war in Ukraine and economic growth in China remain high and continue to point to further decline in stock markets.”

On Tuesday, US Federal Reserve Chairman Jerome Powell implicitly urged investors to order by saying that the central bank would raise rates as high as needed to contain inflation, even if it meant slowing growth.

Inflation is also on the agenda in Europe today; in the United Kingdom it is 9% y/y in April, the highest since the series began in 1989, and we expect final data on price developments in the euro area at 0900 GMT. last month.

In Asia, the Japanese economy contracted slightly less-than-expected in the first quarter, with gross domestic product (GDP) falling 0.2%, while the Reuters consensus forecast was -0.4%.

ON WALL STREET

The New York Stock Exchange finished Tuesday sharply higher, driven by high-growth stocks such as Apple (+2.54%) and Tesla (+5.14%), while US monthly retail sales data dispelled fears of an economic slowdown.

The Dow Jones index added 1.34% to 32,654.59 points, the Standard & Poor’s 500 added 2.02% to 4,088.85 points, and the Nasdaq Composite rose 2.76% to 11,984.52 points.

Ten of the eleven major sectors of the S&P-500 are up more than 2%, led by finance and high tech.

Index futures, which rose slightly earlier in the day, are now suggesting a slightly lower open.

IN ASIA

Elsewhere on the Tokyo Stock Exchange, the Nikkei rose 0.94% to hit its highest level since May 6, driven by big tech stocks such as Tokyo Electron (+2.86%) following the US Nasdaq.

In China, the Shanghai SSE Composite rose 0.26% and the CSI 300 up 0.15% after spending much of the session in negative territory as some investors question the authorities’ ability to meet their economic targets.

Morgan Stanley is now targeting growth capped at 5.2% this year, while Beijing is aiming for 5.5%, explaining that the impact of the “zero COVID” strategy is only partially offset by RELAUNCH measures.

CHANGES

The dollar is stabilizing after falling to its lowest level in two weeks against other major currencies (+0.01), while the euro (-0.13%) is slightly underperforming after a 1.1% jump on Tuesday. a large percentage increase in one session since Marching.

The single European currency is trading at $1.0533 after peaking at $1.0563.

The pound rose to $1.2501 after rising 1.4% on Tuesday, its best session since the end of 2020, before falling back to $1.2471 following inflation data.

INDICATOR

In the bond market, the 10-year Treasury yield of 2.986% remains at Tuesday’s close after Jerome Powell’s announcement. This boosted the most sensitive two-year yield to interest rate expectations, which edged up 14 basis points during the session.

In Europe, German 10-year bonds were virtually unchanged in early trading at 1.059%.

BUTTER

Oil prices, which fell about 2% on Tuesday, are back on track on hopes of a recovery in demand in China as health restrictions are gradually lifted.

The price of Brent crude rose 0.65% to $112.66 per barrel, while US light oil (West Texas Intermediate, WTI) rose 1.09% to $113.62.

(Written by Marc Angrand, with Tom Westbrook in Singapore, edited by Mathieu Protard)

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