Hesitation in sight in Europe after the ECB and Powell

by

HESITATION IN VIEW IN EUROPE AFTER THE ECB AND POWELL by Claude Chendjou PARIS (Reuters) – The main European stock markets are expected to open on an undecided note on Friday after the European Central Bank (ECB) rate hike the day before and the president’s commitment of the US Federal Reserve to fight inflation. According to the first indications available, the Parisian CAC 40 should fall by 0.01% at the opening and the Dax in Frankfurt by 0.06%. The FTSE 100 in London, however, could gain 0.28%. The EuroStoxx 50 index is expected to fall by 0.03%. The ECB decided on Thursday to raise the cost of credit by an unprecedented 75 basis points, while hinting that its monetary tightening would continue, thus prioritizing the fight against inflation despite the risk of a recession in the euro zone this winter. In the United States, where a rate hike of the same magnitude is expected on September 21, Federal Reserve Chairman Jerome Powell said on Thursday that the Fed would continue to act “strongly” to counter inflation. On the markets, the probability of a rate hike by the Fed of three quarter points is now 86% against 77% the day before. The prospect of an acceleration in the cost of credit both in the United States and in Europe did not frighten the equity markets on Thursday, even if a certain volatility remains. “There is a lot of uncertainty and I think investors won’t make up their minds until they see the light at the end of the tunnel,” said Grace Lee, portfolio manager at Columbia Threadneedle Investments. Analysts say the ECB and Powell announcements are not really a surprise and are already priced in, leading investors to now turn to monthly US consumer price figures and the definitive statistic inflation in August in the euro zone, two new economic data which will be published next week. The ECB also reaffirmed that the future trajectory of its key rates would remain dependent on economic data. Friday’s session could also be driven by the gas crisis as a council of EU energy ministers meets in Brussels as EU countries seek emergency solutions to soaring energy bills. A WALL STREET The New York Stock Exchange ended up on Thursday, thanks to the support of banks and health values. The Dow Jones Industrial Average gained 0.61%, or 193.24 points, to 31,774.52 points. The broader S&P-500 gained 26.31 points, or 0.66%, to 4,006.18 points. The Nasdaq Composite advanced for its part by 70.23 points (0.60%) to 11,862.13 points. IN ASIA At the Tokyo Stock Exchange, the Nikkei index ended on a gain of 0.53% to 28,214.75 points and the Topix, wider, took 0.4% to 1,965.53 points. In China, the Shanghai SSE Composite gains 0.75% and the CSI 300 1.34%. In terms of economic indicators, consumer prices in China rose in August at a slower pace than expected (+2.5% on an annual basis, after +2.7% in July) due to the heat wave and the resurgence of the COVID-19 epidemic, according to official data released on Friday. RATES US bond yields are broadly stable on Friday after rising sharply the day before: the two-year appears at 3.5045% and the ten-year trades at 3.3078%. In Europe, the ten-year German, which took 14 basis points on Thursday, gained another 5.1 points to 1.767%, while the two-year advanced by 9.5 points to 1.416% after a gain of more than twenty points the standby. The French ten-year OAT rate took 6.3 points to 2.32% after jumping ten points on Thursday. FOREIGN EXCHANGES On foreign exchange, the dollar lost almost 0.6% against a basket of benchmark currencies, but remained close to its 24-year peak against the yen. The Japanese currency is suffering from the policy of the Bank of Japan considered to be accommodating while that of the Fed is considered restrictive. The euro, which hit an almost 20-year low at the start of the week, advanced 0.69% to $1.0063, well above parity with the greenback, benefiting from ECB announcements . OIL The oil market remains volatile, with investors torn between threats from Russia to stop its hydrocarbon deliveries and fears of a drop in demand. Brent rose 0.34% to 89.45 dollars a barrel and US light crude (West Texas Intermediate, WTI) 0.19% to 83.70 dollars. The two oil benchmarks, however, should show a decline over the week as a whole. (Written by Claude Chendjou, edited by Bertrand Boucey)