Europe still ends up in the red with interest rate fears – 08/29/2022 at 18:33

Europe still ends up in the red with interest rate fears - 08/29/2022 at 18:33
MARKET EUROPE FINISHES IN THE RED

MARKET EUROPE FINISHES IN THE RED

by Claude Chendjou

PARIS (Reuters) – European stock markets ended lower on Monday and Wall Street was also trading in the red mid-session, on the prospect of a rapid and sustained rise in interest rates in both Europe and the United States. which drove bond yields higher and propelled the dollar to a new 20-year high.

In Paris, the CAC 40 ended down 0.83% at 6,222.28 points. The German Dax contracted by 0.61%.

The EuroStoxx 50 index fell 0.92%, the FTSEurofirst 300 0.87% and the Stoxx 600 0.81%.

In the United Kingdom, markets are closed on Monday due to the “Summer Bank Holiday”.

After the sharp fall in the stock markets on Friday in reaction to the statements of Jerome Powell, the president of the American Federal Reserve (Fed), who warned that the restrictive monetary policy of the institution would be maintained “for a certain time”, the actions continued their tumble on Monday, due to a lack of catalyst.

Inflation figures in the euro zone will not be published until Wednesday and the employment report in the United States on Friday.

In the meantime, fears of a recession have driven the trend, especially since in Europe, several officials of the European Central Bank (ECB) such as Isabel Schnabel or François Villeroy de Galhau have pleaded during the weekend in favor of a sharp rise in interest rates in September, in the face of still very high inflation.

As a result, on the money markets, the assumption of a 75 basis point rise in the cost of credit in the euro zone as in the United States for the month of September was strongly reinforced on Monday.

At the same time, the volatility index jumped in session in Europe to a six-week high and in the United States to a seven-week peak at around 27 points.

VALUES IN EUROPE

In Europe, most sectors ended in the red, the most marked drop being for the new technologies compartment, which lost 2.36% in the wake of a further decline in the Nasdaq in the United States.

In Paris, Capgemini dropped 2.19%, while in Frankfurt, SAP fell 0.84%.

On the upside, the Nantes laboratory Valneva advanced by 0.39% following the announcement of positive test results for its vaccine against COVID-19.

Uniper, Germany’s biggest importer of Russian gas, gained 2.95% as Germany’s economy minister said he expected gas prices to fall soon amid faster-than-expected filling of reserve tanks from the country. The prices of gas contracts deliverable in September fell more than 12% on Monday to 267 euros per megawatt hour.

AT WALL STREET

At the time of the close in Europe, the Dow Jones fell by 0.26%, the Standard & Poor’s 500 by 0.32% and the Nasdaq by 0.67%, the indices still being affected by statements by Jerome Powell.

“Investors are now convinced that the Fed really wants to curb inflation”, writes in a note Rod von Lipsey, managing director of UBS Private Wealth Management, while the wealth management subsidiary of the Swiss group expects this market volatility persists until mid-2023.

Technology groups, sensitive to changes in interest rates, fell like Apple (-1.28%), Microsoft (-0.81%) or Tesla (-1.78%).

Dow and Lyondell Basell Industries respectively yielded 1.90% and 1.01% after the lowering of Keybanc’s recommendation to “underweight” on the two chemical groups.

On the upside, the energy sector (+2.12%) is in demand with the continued rise in oil prices.

CHANGES

The dollar, still supported by the words of Jerome Powell, appreciated by 0.01% against the other major currencies and recorded a new high of twenty years.

The euro, despite an increase of 0.37% to 0.9998 dollar, does not manage to rise above parity with the greenback, the risk of recession being considered higher in the euro zone than in the States -United.

RATE

Bond yields in Europe ended up sharply with the upward revision of expectations of a rise in interest rates.

That of the ten-year Bund, a benchmark for the euro zone, ended with a gain of around ten basis points to 1.5010%, after gaining more than 13 points in session to 1.532%, the highest in two months. .

The two-year yield, the most sensitive to changes in rates, gained 12.5 points at 1.092% at the close, but soared in session by 18 points to 1.147%, an unprecedented high since June 21.

At the time of the closing in Europe, the rate of two-year US Treasury bills stood at 3.413% (+20 points) and that of ten years at 3.1098% (+7.5 points).

OIL

Oil prices are supported by fears of an OPEC+ production cut and renewed violence in Libya, two factors that outweigh the strength of the dollar and the risk of recession.

Brent rose 3.03% to 104.05 dollars a barrel and US light crude (West Texas Intermediate, WTI) 3.3% to 96.13 dollars a barrel.

(Written by Claude Chendjou, edited by Sophie Louet)

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