The Paris Stock Exchange, which shows its fifth consecutive decline on Monday, is moving to three-month lows. The acceleration of inflationary pressures suggests an even more aggressive reaction from central banks in terms of monetary tightening, thus heightening fears of recession. At European level, the 19 Stoxx 600 sector indices are in the red, starting with basic resources and automotive.
Mid-session, the Bedroom 40 fell another 2.34% to 6,042.26 points in a relatively substantial business volume of 1.2 billion euros. The contracts future June on US indices fell between 2% and 3.2% after posting their steepest weekly decline since January last week.
The Fed facing a dilemma
Consumer prices rose 8.6% year on year in May in UNITED STATES, unheard of since December 1981. The statistics dashed hopes of an upcoming peak in inflation and increased pressure on the Federal Reserve two days before its monetary policy decision. Until last Friday, economists generally expected the announcement of a 50 basis point hike in the Fed funds rate, but some, including strategists at Jefferies, are now anticipating a 75 basis point hike.
” The problem for risky assets is that [la Fed] is faced with a dilemma, and we are faced with two bad choices, summarizes Max Keitner, strategist at HSBC quoted by Bloomberg. For him, or inflation rises for a long time and central banks will have to do more, which would be detrimental to valuations, and ultimately bad for risky assets. Or, if growth slows more than expected, earnings forecasts will have to be lowered. Since Friday, the path to a soft landing has become even narrower “.
On the bond market, the yield on the 2-year US bond, which reflects interest rate expectations, tightened by 16 basis points to 3.20%, while that of the maturity at 5 years flirts with 3.4%, against 3.2308% for the 10-year loan. This inversion of the curve is generally considered to be the harbinger of a recession.
In Europe, the yield on the German 2-year bond crossed the 1% mark this morning for the first time in more than 10 years. That of the 10-year Bund is trading at 1.5520%, while that of the Italian BTP is tending to 3.8950%. What is weighing on European banks as the ECB did not give, last Thursday, indications on the tools that it intends to implement to support the bonds of the so-called peripheral countries in the face of the risk of widening yield spreads. BNP Paribas, Agricultural credit and Societe Generale lose more than 4%.
Uncertainties surrounding the vaccine candidate of Valneva
Political risk is also on people’s minds. In France, the results of the first round of the legislative elections suggest a fragile majority for the coalition formed around President Emmanuel Macron against the New Popular Ecologist and Social Union (Nupes) led by Jean-Luc Melenchon. Together ! would collect between 260 and 300 seats and the Nupes between 170 and 210, according to the projections of Opinion Way. The absolute majority is fixed at 289 deputies out of a total of 377 elected.
Valneva plunges nearly 27%. The biotech reported Friday evening that the preliminary volume indications received from the European Commission would not be sufficient to ensure the sustainability of the Covid-19 vaccine program..
Sensitive to the economic environment, cyclical and technological stocks follow suit. Renault decrease of 4.9%, Faurecia 5.3%, Unibail-Rodamco-Westfield by 4.7% and STMicroelectronics by 4.5%.
in luxury, LVMH, Kering and Hermes drop between 3.3% and 3.9% while the cities of Shanghai and Beijing have resumed massive testing in the face of the resumption of the wave of Covid-19 contaminations, reviving fears of new confinements shortly after a start to ease health restrictions.
Atos plunged 11.4%. Much mistrust on the eve of the announcement of its new strategic plan.
against the trend, Thales gains 2.1% after the decision of the Australian government to pay 555 million euros to its subsidiary Naval Group in compensation for the breach of the contract relating to the delivery of 12 submarines. In addition, Goldman Sachs resumed coverage of the stock with a “buy” recommendation to target 146 euros.
Elior give up 12%. HSBC downgraded the collective catering group from “buy” to “keep” and reduced its price target from 7.50 to 3 euros. The broker claims to perceive a “ plethora of execution risks as the company, which is looking for a new chief executive, says the pace of recovery is slow.