NewsWorldSharp decline expected in Europe, the Fed worries

Sharp decline expected in Europe, the Fed worries

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NET DROP EXPECTED IN EUROPE, THE FED WORRIES

by Laetitia Volga

PARIS (Reuters) – The main European stock markets are expected to fall sharply on Thursday at the opening, while the dollar climbs the day after the announcements of the American Federal Reserve which raise fears of monetary tightening faster than expected by the markets.

Futures contracts suggest an opening down 1.99% for the Paris CAC 40, 1.83% for the Dax in Frankfurt, 1.39% for the FTSE in London and 2.08% for the Euro Stoxx 50.

On Wednesday evening, the Fed announced after the two-day meeting of its monetary policy committee that it would probably raise interest rates in March and reaffirmed its intention to end, also in March, its bond purchases on the markets, before starting to reduce its balance sheet in a “significant” way.

Its chairman, Jerome Powell, said the central bank would adjust policy with an open mind, with the aim of avoiding entrenching persistently high inflation.

The Fed’s deemed restrictive tone pushed up yields on US government bonds and the dollar while causing Wall Street to give way on Wednesday, then Asian markets.

“Powell’s press conference hinted that the Fed may well hike rates at every meeting or even consider a 50 basis point hike if the need arose because he failed to take the opportunity. to rule out any of these possibilities…that was not the message increasingly nervous markets wanted to hear,” said CMC Markets analyst Michael Hewson.

BNP Paribas estimates that the Fed could raise its rates six times in 2022 against four previously.

On the agenda for the day, investors await, in addition to several company results, the publication at 1:30 p.m. GMT of the first estimate of gross domestic product (GDP) for the United States in the fourth quarter. Economists polled by Reuters are betting on an acceleration in US growth to 5.5% in the last quarter, after 2.3% in the third quarter of 2021.

AT WALL STREET

Futures suggest a Wall Street open down more than 1% after the New York Stock Exchange gave up all of its gains on Wednesday in reaction to the Fed’s restrictive announcements.

The Dow Jones ended down 0.38%, the broader Standard & Poor’s 500 lost 0.15% and the Nasdaq Composite ended in balance at 13,542.12 points.

On the corporate earnings side, Microsoft rose 2.8% the day after announcing a quarterly profit above expectations while Boeing fell 4.8% after indicating that it recorded a charge of 3, $5 billion in Q4 due to delivery delays for its 787 Dreamliner.

After the close, Tesla said it expects a more than 50% year-over-year increase in vehicle deliveries this year despite supply chain issues that the automaker says won’t be resolved until 2023.

Intel reported record fourth-quarter revenue but forecast first-quarter profit below Wall Street expectations.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei fell 3.11% – the lowest since November 2020 – weighed down by technology stocks at the prospect of a rate hike in the United States from March.

In China, the large-cap CSI 300 lost 1.96% and the Shanghai SSE Composite Index fell 1.78%.

EXCHANGES/RATES

The yield on two-year US government bonds, which are more sensitive to changes in interest rates, hit a nearly two-year high on Thursday at 1.196%.

That of ten-year Treasuries for its part returned to 1.8388%, but remained close to the one-week peak hit the day before at 1.88%.

“The market thought that four rate hikes were almost certain for this year, that is to say one per quarter (…) But Jerome Powell did not rule out that he would have more than four increases”, has said Moh Siong Sim, strategist at Bank of Singapore.

In early trading, the ten-year Bund yield rose more than three basis points to -0.036%.

The high level of Treasury bond yields pushed the dollar up, which appreciated by 0.77% against a basket of benchmark currencies.

The euro fell to its lowest level in two months, at 1.1211.

OIL

Oil prices are on a downward trend with the rise in the dollar: a barrel of Brent yields 0.48% to 89.53 dollars and American light crude 0.58% to 86.84 dollars.

(edited by Blandine Hénault)

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