Europe ends in the red again, the Fed fuels nervousness


The chart of the DAX German stock price index at the Frankfurt stock exchange

by Claude Chendjou

PARIS (Reuters) – European stocks ended lower on Tuesday and Wall Street was also trading in the red mid-session, as nervousness dominated equity markets at the start of the two-day monetary policy meeting of the US Federal Reserve (Fed), which is expected to end with a sharp rise in interest rates on Wednesday, despite fears of a recession.

In Paris, the CAC 40 ended down 1.35% at 5,979.47 points. The German Dax dropped 1.03%. Britain’s Footsie fell 0.61% after a three-day shutdown linked to Queen Elizabeth’s funeral.

The EuroStoxx 50 index fell by 0.93%, the FTSEurofirst 300 by 1.02% and the Stoxx 600 by 1.09%.

Waiting for decisions from the Fed’s Federal Open Market Committee (FOMC) did little to encourage risk-taking in Europe, where the volatility index on the Stoxx 600 ended with a gain of 3.7% at 27.15 points, while its US equivalent advanced 3.14% to 26.57, close to the two-month high recorded last week.

“Traders are extremely cautious ahead of tomorrow’s Fed announcement,” said Peter Cardillo, chief economist at Spartan Capital Securities.

With another Fed rate hike of 75 basis points no longer being debated, investors will focus, according to Peter Cardillo, on whether a hike of this magnitude will now be the norm for future central bank meetings. American.

Sweden’s central bank surprised on Tuesday by announcing a 100-point hike in its key interest rate, to 1.75%, and warned that it plans to continue tightening monetary policy to combat the inflation.

The monetary policy decisions of the Bank of England (BoE), the Bank of Japan (BoJ) and the Swiss National Bank (SNB) will be known on Thursday. Switzerland also sharply reduced its growth forecasts on Tuesday, to 2% for this year and 1.1% for 2023.

“A more restrictive monetary policy in the world will increase the threat to risky assets,” ING bank warned on Tuesday.

VALUES

In Europe, apart from tourism and leisure (+0.2%), all other sectors ended in the red, including the banking sector (-0.08%) which erased earlier gains linked to expectations interest rate hike.

Real estate (-4.1%), which should suffer from the increase in the cost of credit, showed the largest sectoral decline.

Unibail-Rodamco and Klépierre lost 4.29% and 4.39% respectively.

In terms of business results, the British DIY store group Kingfisher (-3.92%) was penalized by the fall of nearly 30% in its half-year profit, while the German Henkel, up 1.22 %, benefited from the increase in its organic growth forecast for this year.

Fortum, Uniper’s largest shareholder (+3.83%), jumped 9.5% following the announcement of a plan to nationalize the German energy supplier, which will result in the takeover of the participation of the Finnish group by the German public authorities.

AT WALL STREET

At the close in Europe, the Dow Jones fell 1%, the Standard & Poor’s 500 0.96% and the Nasdaq 0.53%. All major sectors of the S&P-500 are in the red.

Technology groups are experiencing mixed fortunes with bargain purchases on Apple (+1.91%) and Tesla (+1.35%), while Alphabet (-0.90%) and Amazon (-0.50 %) are neglected.

Paypal fell 2.55% after a recommendation downgrade.

Ford fell 9.74% as the automaker said Monday its supply costs would rise about $1 billion more than expected in the third quarter. Its competitor General Motors yields 4.63%.

CHANGES

The dollar, up 0.28% against other major currencies, is approaching its 20-year peak recorded on September 7. The greenback is benefiting from both its status as a safe-haven asset and the prospect of a sharp rise in rates, with the probability of a 100 basis point hike in the cost of credit on Wednesday being 19% according to the Fedwatch barometer .

The euro fell back below parity with the greenback, at 0.9989 dollars (-0.33%).

RATE

Bond yields in Europe ended sharply higher, driven in particular by producer price figures in Germany, which in August recorded an unprecedented increase over one year and one month, by 45.8% and 7 respectively, 9%. This paves the way for a further acceleration of the rate hike in the euro zone.

The ten-year German Bund yield closed at its highest level since January 2014 at 1.94% (+15 points); the five-year one also ended with a gain of 15 points to 1.84% and the two-year one, the most sensitive to rate changes, jumped more than 12 points to 1.72%.

According to expectations on the evolution of the cost of credit in the euro zone, the interbank rate should reach 2.7% in August 2023.

In the United States, the yield on ten-year Treasuries rose nine points to 3.57% and that of two years by around three points to 3.97%.

OIL

Oil prices are penalized by the strength of the dollar which could affect demand. Signs of tight supply are limiting the extent of the decline, however, with an OPEC+ document showing the organization’s output in August falling short of the planned target of 3.583 million barrels per day ( bpd).

Brent fell 1.82% to 90.33 dollars a barrel and US light crude (West Texas Intermediate, WTI) 1.9% to 84.1 dollars.

(Written by Claude Chendjou, edited by Sophie Louet)

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