(BFM Bourse) – The Paris Bourse continues to sink new lows threatening even the emblematic threshold of 6,000 points throughout the day. This Monday evening, the CAC 40 still loose 2.67%, its largest drop since May 9, after signing its worst week since the invasion of Ukraine. Since the beginning of the year, the three-color flagship index has thus dropped more than 15%.
And a new wave of panic is spreading on the stock market after a first warning in early May. the CAC 40 thus closed on Monday at -2.67% at 6,022.32 points in an expanded volume of 4.36 billion euros traded. The Paris star index had not experienced such a fall since May 9 (-2.75%), after having had its worst week since the invasion of Ukraine. The more inflation increases, the more central banks will have to restrict credit, at the risk of further weighing down the economy already threatened by geopolitical crises.
The capitulation movement took all of the European markets, Frankfurt lost 2.23%, London 1.53%, Milan 2.76% and the European benchmark index, the Eurostoxx 50 2.33%. At the same time, the current of risk aversion swept the American indices. On Wall Street, the Nasdaq accelerated its fall and fell by 3.90% at the time of the European close, while the Dow Jones lost 2.38% and the S&P 500 3%. The S&P once again entered the bear market, ie the index lost more than 20% compared to its peak in January.
On the cryptocurrency side, the bitcoin has a black Monday. The price of the queen of cryptocurrencies fell below $24,000, a level it had not seen since December 2020. The crypto market as a whole fell below the symbolic threshold of $1,000 billion in capitalization.
Inflation and rising interest rates panic the markets
This panic in the markets is symptomatic of investors’ fears about the Herculean task central banks are only just beginning to tackle after years of generous policy support. The VIX, the “fear index” which measures market volatility soared 23% to reach 34.16. On Friday, the consumer price index in the United States revealed a further acceleration in May to +8.6% inflation over one year, once again taking the consensus of forecasts by surprise, which leads investors to further reassess their long-term expectations upwards. The monthly survey from the University of Michigan, also published on Friday, pointed to a deterioration in consumer confidence in June, to its lowest level for … 70 years.
However, central banks are only just starting to tighten their policy: the US Federal Reserve tightened rates in March and then in May to bring them to 1%, which still means considerable potential before reaching a level truly restrictive (the real rate is still largely negative because it is well below inflation). The American financier will set the tone for its future monetary policy on Tuesday and Wednesday. A rate hike of half a percentage point has already been priced in by investors. However, the hypothesis of a drier turn of the screw of 0.75 percentage point in its key rate is not excluded, which could constitute an unprecedented decision since 1994.
As for the European Central Bank, it was only last week that it officially announced its first rate hike (for next month). In Europe outside the EU, it was the British GDP which disappointed this morning, showing a contraction of 0.3% in April instead of a slight increase expected, while the Bank of England will in turn hold its meeting this week.
In concrete terms, the tightening of monetary policies is pushing bond yields to levels not seen for 11 years, with the 10-year US Treasury note rising to 3.29%, the German Bund of the same maturity not being in remains at 1.569%, which marks a peak since 2014, just like the French 10-year bond which was trending at 2.23% or the Italian debt which saw its 10-year yield soar to 4.40%. A surge in bond yields which mechanically degrades the relative interest of an equity investment.
Valneva in trouble
On the eve of the presentation of its new strategic plan, where the group should announce the spin-off of its IT services divisionreveals BFM Business, Atos plunges nearly 11%.
Elior shows the largest drop in the SBF 120 on Monday (-18.31%), penalized by an analyst degradation. The market doubts the capacity of the collective catering specialist to raise the bar in a highly inflationary context and rising rates.
Among the rare increases, Thales (+2.10%) benefits from the prospect of receiving compensation of 555 million euros after the Australian government broke the agreement for the delivery of 12 submarines, DanoneCrossroads and Orange grabbing a few points given the defensive nature of their activity. Out of the flagship index, Pizzorno Environment wins 3.79% after winning the waste collection contract for 61 municipalities in the Lille metropolitan area for the next seven years.
On the currency side, the dollar benefits from its status as the world’s reserve currency and theeuro fell 0.59% to 1.0428 dollars, the lowest for more than a month.
Energy prices fell by 1.05% to 120.65 dollars for a barrel of Brent and 1.05% to $119.26 for the WTI, fearing that a deterioration in the economy would limit demand. In addition, as China struggled to fill its stocks last month in the run-up to a wider reopening in June, this scenario is taking a turn for the worse in view of the latest news from the health front.
Sabrina Sadgui – ©2022 BFM Bourse