Decline expected in Europe after the Fed

Decline expected in Europe after the Fed


The sign near the Palais Brongniart, former Paris Stock Exchange, located Place de la Bourse in Paris

by Claude Chendjou

PARIS (Reuters) – The main European stock markets are expected to fall on Thursday in the wake of Wall Street when the session should again be dominated by the decisions of central banks the day after a three-quarter point increase in interest rates. US Federal Reserve (Fed).

According to the first indications available, the Dax in Frankfurt should lose 1.82% at the opening, the FTSE 100 in London 0.92% and the EuroStoxx 50 index 1.75%.

The U.S. Federal Reserve on Wednesday announced a third consecutive three-quarters percentage point interest rate hike and hinted that it should decide on a fourth by the end of the year to bring inflation down. .

The fed funds rate target is thus raised to 3.00%-3.25%, its highest level since 2008, and new central bank projections show it should rise by 1.25 percentage points. by the end of December, then peak at 4.60% in 2023.

These new projections, considered aggressive, surprised investors, especially the most optimistic who had initially been relieved by a rate hike limited to three quarters of a point while a 100 basis point hike was also on the table. .

“The Fed is not going to stop any time soon and there is going to be an extended period of tight monetary policy until at least next year,” said Sally Auld, chief investment officer at wealth manager JB Were. .

The FOMC (Federal Open Market Committee), the monetary policy committee of the central bank, however indicated on Wednesday that it does not foresee any rate cut before 2024.

In Japan, the country’s Central Bank maintained its ultra-accommodative policy on Thursday, maintaining the short-term rate target at -0.1%, thus widening the gap between its strategy and those pursued by the others. major central banks in the world.

Investors are now awaiting monetary policy releases from the Swiss National Bank (SNB), the Bank of England (BoE) and Norges Bank (the Norwegian central bank), while in the euro zone the publication of PMIs on Friday on manufacturing activity and that of services should provide them with new elements on the evolution of the economic situation.

AT WALL STREET

The New York Stock Exchange ended sharply lower on Wednesday, after a nervous session during which investors tried to decipher the latest announcements from the Federal Reserve and the speech of its chairman, Jerome Powell.

The Dow Jones index fell 1.7%, or 522.45 points, to 30,183.78 points.

The broader S&P-500 lost 66.11 points, or 1.71%, to 3,789.82 points.

The Nasdaq Composite fell for its part by 204.86 points (-1.79%) to 11,220.19 points.

IN ASIA

At the Tokyo Stock Exchange, the Nikkei index, which hit a two-month low in session, fell 0.57% to 27,156.21 points. The broader Topix fell 0.2% to 1,916.94 points as the close approached.

In China, the Shanghai SSE Composite lost 0.29% and the CSI 300 lost 0.79%.

RATE

In the bond market, the yield spread between ten-year and two-year US paper Treasuries widened to 56 points as investors braced for a recession. The yield of the first is displayed at 3.5416% and that of the second at 4.1320% on the Asian markets.

In Europe, the ten-year German yield ended at 1.88% while the two-year returned to 1.75%.

CHANGES

The dollar, up 0.88% against a basket of benchmark currencies, continues to benefit both from its status as a safe haven and from the rise in US interest rates.

The yen fell to more than 20 years at 145.5 dollars before the announcement of the decisions of the Bank of Japans.

The euro, down 0.06%, is trading at 0.9831 dollars.

OIL

Oil is supported by renewed geopolitical tensions and fears over supply which are taking precedence over concerns over demand.

Brent rose 0.41% to 90.2 dollars a barrel and US light crude (West Texas Intermediate, WTI) 0.37% to 83.25 dollars a barrel.

(Written by Claude Chendjou, edited by Matthieu Protard)

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