EUROPE ENDS IN RED, INFLATION WORRY
PARIS (Reuters) – European equities closed lower on Wednesday, with Wall Street also trading lower mid-session on rising inflation and fears of accelerating interest rate hikes, which could weigh on the economy and the results of US companies. Target’s distribution group was the last to be hit by higher costs.
In Paris, the CAC 40 fell 1.2% to 6,352.94. British Footsie lost 1.07% and German Dax lost 1.26%.
The EuroStoxx 50 fell 1.36%, the FTSEurofirst 300 fell 1.13% and the Stoxx 600 fell 1.14%.
Even if eurozone price increases stabilized at 7.4% y/y in April, so-called core inflation, excluding energy and unprocessed food, stood at 3.9% y/y after 3.2% in March. nearly double the European Central Bank’s (ECB’s) target of 2%, which should see it start raising rates from July.
In the United Kingdom, where monetary tightening is already in place, inflation hit an annual rate of 9.0% in April, a level not seen since the late 1980s.
In the United States, traders are expecting a half-point rise in the cost of borrowing to 85.3% at next month’s Federal Reserve meeting as Federal Reserve Chairman Jerome Powell said the central bank will raise rates as high as necessary to contain inflation, even if it meant restraint of growth.
In this context, the rebound recorded by the stock markets on Tuesday is seen by many investors as a surprise.
“Investor sentiment and confidence remain fragile and as a result we are likely to see market volatility and volatility until we have more clarity on rates, recession and risks,” said Mark Hefele, chief investment officer at UBS Global Wealth Management.
The VIX volatility index in the US is rising again by 10% after six consecutive sessions of decline. Its European counterpart ended up up 5.27%.
ON WALL STREET
As a result of trading in Europe, the Dow Jones index fell by 2.21%, Standard & Poor’s 500 – by 2.56%, and Nasdaq – by 2.76%.
All major sectors of the S&P-500 are in the red, with consumer goods and non-essentials falling about 3.5% in response to Target’s results.
The US distributor reported a halving in quarterly earnings due to rising prices, sending the stock down nearly 25%. Following this, shares of Gap, Kohl’s, Nordstrom, Costco, Best Buy and Macy’s fell from 7.6% to 10.8%.
Tech groups Microsoft, Apple, Alphabet, Meta Platforms, Tesla and Amazon, whose shares have fallen from 1.7% to 4%, have for their part been hit by expectations of higher borrowing costs.
“The market is very worried about rising rates and the possibility that the Fed will weaken the economy,” said Brooke May, partner at Evans May Wealth. “Higher rates will obviously eat into consumer spending in addition to corporate income, and the market is just trying to digest that,” she adds.
VALUES IN EUROPE
On the pan-European Stoxx 600, apart from energy (+0.91%) and defense segments such as real estate (+0.26%) and utilities (+0.68%), all other sectors completed the fall.
The two so-called core (-1.76%) and non-essential (-2.09%) consumption segments suffered one of the biggest declines since the fall of US distributor Target. Carrefour lost 4.42%.
Other financial releases led the trend, such as equity market operator Euronext, whose shares rose 3.85% after better-than-expected results and cost control.
British luxury brand Burberry was pleased with its forecast, while catering group Elior suffered a cut in its full-year forecast precisely because of inflation.
The results of the Dutch bank ABN Amro were also disappointing (-11.88%).
On the merger, Commerzbank shares rose 3.08% after press reports of discussions earlier in the year with Italian bank UniCredit.
Air France-KLM shares rose 4.87% on an air travel partnership with transport group CMA CGM, while Siemens Energy benefited from speculation over the Siemens Gamesa offer.
On SBF120, Orpéa’s share fell 19.17% as the group announced that they had filed a complaint against X for potentially criminal acts in response to information in the press. Its rival Korian lost 4.4%.
The dollar rose 0.20% against a basket of benchmark currencies on renewed risk aversion a day after its biggest single-session drop in more than two months.
The euro, which fell 0.37%, is trading at $1.0508, the single European currency did not react to the publication of inflation data.
The pound rose to $1.2501 after rising 1.4% on Tuesday, its best session since the end of 2020, before falling back to $1.2410 following inflation data.
In cryptocurrencies, Bitcoin fell 4.72% to $29,013 on risky assets.
In the bond market, German 10-year yields fell nearly four basis points to 1.013%, while 2-year yields ended at 0.378% after reaching a high since November 2011 at 0.444%.
German bond rates benefited the day before from comments by Klaas Noth, president of the Dutch central bank, who raised the possibility of a half-point increase in the European Central Bank’s (ECB) deposit rate in July.
The 10-year Treasury yield, in turn, shed 4.6 points to 2.924%, after also benefiting the day before from recent statements by US Federal Reserve President Jerome Powell.
The oil market is volatile, with investors torn between hopes for rising demand in China as the country lifts some medical restrictions and the European Union’s plan to mobilize up to 300 billion euros of investment by 2030 to end dependence on Russian oil. and gas.
A barrel of Brent oil lost 1.97% to $109.77, while a barrel of American light oil (West Texas Intermediate, WTI) lost 1.9% to $110.21.
(Report by Claude Shenjou edited by Jean-Michel Belo)