Drop in sight in Europe, the Fed weighs down the atmosphere

by Marc Angrand

PARIS (Reuters) – The main European stock markets are expected to fall on Friday in the wake of Wall and Tokyo after statements by several officials of the US Federal Reserve confirming their desire to raise interest rates in March to stem inflation.

Index futures suggest a decline of 0.56% for the Dax in Frankfurt, 0.45% for the FTSE 100 in London and 0.87% for the EuroStoxx 50. As for the CAC 40 in Paris, it could yield around 0.7% according to the first indications available.

While Fed Chairman Jerome Powell’s congressional hearing had rather benefited equities on Tuesday, his likely future vice-chairman, Lael Brainard, threw a chill by telling the Senate that the institution had planned “several increases in the course of the year” and that it could take action “as soon as our purchases are completed”, therefore potentially as early as the meeting in mid-March.

San Francisco Regional Office President Mary Daly later deemed it “reasonable” to raise rates in March and her Chicago counterpart Charles Evans said monetary policy was “counter-beneficial” for now. foot” from the point of view of inflation.

These statements eclipsed the sharper than expected deceleration in producer prices in the United States.

“Everyone is very nervous right now, because everything is likely to be pressured by the Fed’s aggressive policy,” said IG analyst Kyle Rodda. “We hope that the return to normal monetary policy will be slow and painless, but that is not guaranteed because the Fed takes inflation very seriously.”

Investors await US retail sales figures for December on Friday, which may have suffered from the start of the “Omicron wave” of the COVID-19 epidemic. The session will also be animated by the first publications of results in the American banking sector, with those of Wells Fargo and Citigroup.

AT WALL STREET

The New York Stock Exchange ended lower on Thursday on profit-taking, particularly on technology stocks after three consecutive sessions of increases, after statements by Fed officials.

The Dow Jones index fell 0.49%, or 176.7 points, to 36,113.62, the Standard & Poor’s 500 lost 67.32 points (-1.42%) to 4,659.03 and the Nasdaq Composite fell 381.58 points (-2.51%) to 14,806.81.

Among the eleven major sectoral indices of the S&P, that of technology posted the largest drop at the end of the session (-2.65%), ahead of that of non-essential consumption (-2.08%) and that of health ( -1.63%).

Futures on major indices suggest a slightly higher open for now.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index fell 1.28% at the end of the day after falling below 28,000 points for the first time since December 20, as technology stocks weighed on the trend in the wake of the American Nasdaq.

In China, the Shanghai SSE Composite lost 0.85% and the CSI 300 0.67%, with fears over the real estate sector taking over: the sector index lost 3.53%, its fourth consecutive decline.

For its part, the Seoul Stock Exchange lost 1.3% after a further increase in the central bank’s key rate, to 1.25%, its level before the pandemic, in order to curb inflation.

In China, the monthly foreign trade figures show a slowdown in both imports and exports, although these slightly exceeded expectations last month.

EXCHANGES/RATES

Statements by Fed officials were not enough to reverse the downward trend in the dollar, which depreciated by 0.14% against other major currencies.

The greenback is heading for its worst weekly performance in eight months, as long positions have been reduced as upcoming rate hikes are now seen as priced in by the market.

The euro, at 1.1478 dollars, is trading at its highest since November 11.

On the bond market, the yield on ten-year US Treasury bonds, at 1.7256%, only erased a small part of its decline in Asia on Thursday, a consequence of the general resurgence of risk aversion.

OIL

The oil market is down slightly, the evolution of the COVID-19 epidemic in China fueling fears for demand while on the American side, Washington announced on Thursday the sale of 18 million barrels of crude oil drawn from strategic reserves , in an attempt to lower prices at the pump.

Brent was virtually unchanged at $84.58 a barrel, but US light crude (West Texas Intermediate, WTI) fell 0.11% to $82.03.

(Written by Marc Angrand, with Daniel Leussink in Tokyo)