Sharp fall in equities with the rise in yields – 05/09/2022 at 14:04

Sharp fall in equities with the rise in yields - 05/09/2022 at 14:04


EUROPEAN STOCK MARKETS FALL AT MID-SESSION

by Laetitia Volga

PARIS (Reuters) – Wall Street is expected to fall at the open and European stocks are down on Monday mid-session, while bond yields rise on worries about inflation and the tightening of central bank policy.

Index futures show a drop of 1.67% for the Dow Jones, 2.11% for the Standard & Poor’s-500 and 2.69% for the Nasdaq. In Paris, the CAC 40 lost 2.12% to 6,125.57 around 11:30 GMT. In Frankfurt, the Dax lost 1.78% and in London, the FTSE lost 1.92%.

The pan-European FTSEurofirst 300 index fell by 2.04%, the EuroStoxx 50 of the euro zone by 2.19% and the Stoxx 600 by 2.11%.

The prospect of further interest rate hikes to fight inflation is hurting global equities and bond markets where sovereign yields have hit new highs.

In addition to the tightening of monetary conditions, the indirect effects of the war in Ukraine and the strengthening of an anti-COVID-19 policy in China reinforce fears of a sharp slowdown in the global economy.

The Sentix index of euro zone investor sentiment is at its lowest since June 2020, at -22.6 in May, falling for the third consecutive month as the impact of the crisis in Ukraine on the economy increasingly appears more clearly.

VALUES IN EUROPE

All of the major sectors on the European rating are in the red and among the steepest declines are Basic Resources (-4.11%) and High Tech (-3.65%).

The first is penalized by the 7% drop in iron ore prices in China in the face of concerns about demand, while the second is weakened by the level of bond yields.

In Paris, Atos lost 4.63% and ArcelorMittal 2.96%. In London, the mining groups Rio Tinto, Glencore and Anglo American yielded from 4.73% to 5.63%.

Infineon fell 4.78% after the increase, “widely expected” according to Jefferies, of its annual turnover target.

RATE

The yield on ten-year US government bonds gained nearly five basis points to 3.1746%, after a high since November 2018 at 3.203%.

Its German equivalent is also progressing, which allowed it to record a peak since August 2014 at 1.189%.

Faced with galloping inflation, the markets are expecting the European Central Bank to start raising its rates this year.

Governing Council member Robert Holzmann thinks it appropriate for the ECB to make two or three rate hikes, he said in an interview published on Saturday.

The money markets are anticipating a rise of almost 95 basis points in the ECB’s deposit rate by the end of the year.

CHANGES

The dollar is higher, supported by the recovery in Treasury yields and fears related to COVID-19 in China. Against a basket of international currencies, it gained 0.17% and recorded a peak of almost twenty years in session.

The euro fell as much as 0.55% in session, to 1.0493 dollar, before stabilizing around 1.054. The sterling hit its lowest level in nearly two years against the greenback at 1.2258.

The onshore yuan fell to its lowest since October 2020 after China trade figures confirmed market concerns over the impact of lockdowns on the economy: exports rose in April at their slowest pace since June 2020 (+3.9% year-on-year) while imports remained stable.

OIL

Oil prices are falling sharply, driven by a stronger dollar and demand concerns in China.

Brent fell 2.27% to 109.84 dollars a barrel and US light crude (West Texas Intermediate, WTI) 2.46% to 107.07 dollars.

(Written by Laetitia Volga, Editing by Kate Entringer)

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