Europe ends in the red, interest rate fears – 06/01/2022 at 18:52


EUROPEAN STOCK MARKETS CLOSE LOWER

by Claude Chendjou

PARIS (Reuters) – European stocks ended lower on Wednesday and Wall Street was also in the red mid-session in volatile markets as investors feared an accelerated pace of monetary tightening by central banks amid the latest economic data.

In Paris, the CAC 40 closed down 0.77% at 6,418.89 points. Britain’s Footsie lost 0.98% and Germany’s Dax 0.33%.

The EuroStoxx 50 index fell 0.78%, the FTSEurofirst 300 0.94% and the Stoxx 600 1.04%.

Uncertainties about economic growth and central bank policies are fueling risk aversion and volatility in stock markets, which oscillated between gains and falls throughout the session depending on the day’s economic indicators.

Euro-zone manufacturing activity growth slowed to 54.6 in May, the lowest since November 2020, while retail sales in Germany fell by a more-than-expected 5.4% in April.

In the United States, on the other hand, contrary to all expectations, manufacturing activity accelerated in May thanks to continued buoyant demand, which averts the specter of a looming recession, but at the same time gives the US Federal Reserve the opportunity to raise interest rates sharply.

The Bank of Canada, which estimates Canada’s economy in slack, decided on Wednesday to raise interest rates from 1.0% to 1.5%, the second consecutive 50 basis point hike, and it is said to be poised to go further to bring inflation down to 2%.

“The environment is incredibly uncertain right now,” notes Mike Bell, market strategist at JP Morgan Asset Management. “At times like these, it makes sense to reduce the size of your risk positions,” he adds.

For Paul Kim, chief executive and founder of Simplify ETFs, not only will interest rates “continue to rise,” but we must “expect a decline in risky assets in an environment that will be the opposite of a decade of accommodative politics.”

In a sign of market jitters, the index, which measures volatility, rose almost 4% in the United States, approaching the 30-point threshold, and closed above 25 points in Europe.

VALUES IN EUROPE

In Europe, all major sectors of the Stoxx 600 ended negatively, with property values ​​seeing the most notable fall (-2.15%).

The banking sector (-0.75%), supported in the session by expectations of rate hikes, closed all its gains.

DWS, the asset management subsidiary of Deutsche Bank (+0.3%), fell 6.3% in response to the resignation of the group’s CEO the day after a search of the company’s premises.

The automotive sub-sector managed to escape the general downturn with a plus of 1.38%. Renault, at the top of the CAC 40, rose 2.4% in the wake of its partner Nissan, a study by JPMorgan forecast record profits for Japan’s auto sector in the current fiscal year. Stellantis, second on the Paris Index, rose 1.7%.

dr Martens posted notable gains, up 19.5%, driven by its guidance for annual revenue growth and the announcement that the group will resume paying the dividend this year.

ON WALL STREET

At the close in Europe, the Dow Jones was down 1.01%, the Standard & Poor’s 500 was down 1.12% and the Nasdaq was down 1%.

The indices, which had opened in the green thanks to the solid results and forecasts of companies such as Salesforce (+10.1%) or Capri (+0.7%), reversed after US manufacturing activity figures.

Ten of the S&P 500’s 11 major sectors are now trading lower, with real estate (-2.03%) posting one of the largest declines while energy (+0.6%) is the only one rising.

The Emerging Technologies sector (-0.6%) also gave up initial gains linked to bargain buys in stocks like Apple, Microsoft and even Meta Platforms.

CHANGES

The dollar appreciated 0.94% against a basket of benchmarks to hit a two-week high against the yen at 130.08, helped by the rise in US bond yields.

The euro, down 0.83% to $1.0644, is well off a one-month high hit on Monday at 1.0787.

EVALUATION

Bond yields continue to benefit from higher interest rate expectations amid record inflation numbers and other economic data.

The 10-year German Bund, the benchmark for the eurozone, rose more than five points to 1.179%. It’s up more than 20 basis points since the start of the week and is heading for its best weekly performance in almost a month.

The 10-year US Treasury yield rose 8.9 points to 2.9332% and the 2-year bond yield, which is the most sensitive to interest rate changes, rose 13 points to 2.670%.

OIL

Oil prices continue to be supported by the European agreement on a massive embargo on Russian crude oil imports and the lifting of restrictions in Shanghai.

The barrel of Brent rose 1.35% to $117.14 and the barrel of American Light Crude (West Texas Intermediate, WTI) rose 1.28% to $116.17.

METALS

Risk aversion favors gold, which rebounded from a two-week low on Wednesday. At the close in Europe, the yellow metal was up 0.31% to $1,842.61 an ounce.

(Written by Claude Chendjou, edited by Jean-Michel Bélot)

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