Europe ends in the red, inflation worries – 5/18/2022 at 6:41 PM


EUROPE ENDS IN THE RED, INFLATION CONCERNS

by Claude Chendjou

PARIS (Reuters) – European stocks ended lower on Wednesday and Wall Street also traded in the red in the mid-session amid rising inflation and fears of an acceleration in rate hikes, which could affect the economic situation and the results of companies, the U.S. distribution group Target was the last to be affected by the increase in costs.

In Paris, the CAC 40 was down 1.2% at 6,352.94 points. British Footsie lost 1.07% and German Dax 1.26%.

The EuroStoxx 50 index fell by 1.36%, the FTSEurofirst 300 by 1.13% and the Stoxx 600 by 1.14%.

Even though the price increase in the eurozone stabilized at 7.4% year-on-year in April, so-called core inflation, excluding energy and unprocessed food, stood at 3.9% year-on-year, after 3.2% in March, almost double the rate. the target of the European Central Bank (ECB) of 2%, which should lead to it increasing its rates from July.

In the United Kingdom, where monetary tightening is already underway, inflation reached 9.0% yoy in April, a level not seen since the late 1980s.

In the United States, traders expect the cost of credit to rise half a point to 85.3% at the US Federal Reserve meeting next month, as chairman Jerome Powell said the central bank would raise interest rates as high as needed to control inflation, even if it meant slowing growth.

In this context, the stock market recovery on Tuesday is seen by many investors as a flash in the pan.

“Investor sentiment and confidence remain fragile and as a result we are likely to see volatile and choppy markets until we gain more clarity on rates, recession and risks,” said Mark Haefele, Chief Financial Officer Investments at UBS Global Wealth Management.

The VIX volatility index in the United States is rising again, by 10%, after six consecutive sessions of decline. Its European equivalent finished with a gain of 5.27%.

AT WALL STREET

At the close in Europe, the Dow Jones fell 2.21%, the Standard & Poor’s 500 2.56% and the Nasdaq 2.76%.

All major sectors of the S&P 500 are in the red, with consumer goods and non-essential goods and services each falling about 3.5% in response to the Target results.

The US distributor reported a quarterly profit that had been halved due to the price hikes, pushing the promotion down by almost 25%. In its wake, Gap, Kohl’s, Nordstrom, Costco, Best Buy and Macy’s fell from 7.6% to 10.8%.

Technology groups, Microsoft, Apple, Alphabet, Meta Platforms, Tesla and Amazon, which fell from 1.7% to 4%, are in turn being hurt by the expectation of rising credit costs.

“The market is very concerned about rising interest rates and the possibility of the Fed weakening the economy,” said Brooke May, partner at Evans May Wealth. “Higher rates will obviously hurt consumer spending, in addition to corporate profits, and the market is just trying to digest that,” she adds.

VALUES IN EUROPE

On the pan-European Stoxx 600, except for energy (+0.91%) and defensives such as real estate (+0.26%) and utilities (+0.68%), all other sectors retreated.

The two compartments of so-called essential (-1.76%) and non-essential (-2.09%) consumption suffered one of the biggest declines in the wake of the plunge of US distributor Target. Carrefour had to lose 4.42%.

Other financial statement releases led the trend, such as stock exchange operator Euronext, which gained 3.85% on better-than-expected results and cost containment.

British luxury brand Burberry was buoyed by its outlook, while collective catering group Elior suffered a cut in its annual forecast, precisely because of inflation.

The results of the Dutch bank ABN Amro (-11.88%) were also disappointing.

In merger operations, Commerzbank shares ended 3.08% gains following a press release that sparked discussions with Italian bank UniCredit at the start of the year.

Air France-KLM won 4.87% on an air freight partnership with shipping group CMA CGM and Siemens Energy benefited from speculation over a bid for Siemens Gamesa.

On the SBF120, Orpéa’s share fell 19.17% after the group announced it had filed a complaint against X for possible criminal offences, following press information. Competitor Korian lost 4.4%.

CHANGES

The dollar rose 0.20% against a basket of benchmark currencies, benefiting from renewed risk aversion on the day after its largest single-session decline in more than two months.

The euro, down 0.37%, is trading at $1.0508 as the European single currency has failed to respond to the release of inflation figures.

The pound rose to $1.2501 after rising 1.4% on Tuesday, its best session since late 2020, before returning to 1.2410 after inflation data.

In cryptocurrencies, bitcoin fell 4.72% to $29,013, penalized by caution with risky assets.

RATE

In the bond market, the 10-year German Bund yield fell by almost four basis points to 1.013% and the two-year yield ended at 0.378% after peaking since November 2011 at 0.444%.

German bond yields had benefited the day before from comments from Klaas Knot, the president of De Nederlandsche Bank, who raised the possibility of raising the deposit rate by half a point on the deposit rate of the European Central Bank (ECB) in July. .

Ten-year Treasury yields, in turn, lost 4.6 points to 2.924%, after also benefiting from the latest statements from US Federal Reserve President Jerome Powell the day before.

OIL

The oil market is volatile, with investors torn between hopes of a surge in demand in China as some health restrictions are lifted in the country, and the European Union’s plan to mobilize up to €300 billion in investment by 2030 to end its dependence on Russian oil and natural gas.

The barrel of Brent lost 1.97% to $109.77 and that of US light crude (West Texas Intermediate, WTI) 1.9% to $110.21.

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

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