“The ECB creates volatility, not a trend”. The commentary of economist Christian Parisot, for the analysis company Aurel BGC, dates from Friday morning, but is still relevant today. This Monday, four days after the European Central Bank buried the leading forward and raised key rates by 50 basis points in exchange for the hawks’ approval of the implementation – which has become urgent due to the Italian political crisis – of an anti-fragmentation tool (announcement first accepted , until the conditions are indicated), the Room 40 closed the session with a small gain of 0.33%, up to 6,237.55 points, after losing up to 0.6% this morning. On Wall Street, American indexes remain very close to equilibrium.
“Feelings become extremely volatile” in recent weeks, says Neil Birrell, chief investment officer at asset management firm Premier Mitton Investors in London. “The bad news can be understood – attention, logic acrobatics – like good news. » Due to the decrease in activity – whether in industry or services – and due to the decrease in demand due to the rise in prices, perhaps – and that is what the stock market expects – the major central banks less aggressive in their money squeeze.
75 basis points again this month, and then?
In a world gripped by high inflation, a kind of fifth horseman of the Apocalypse is fighting the central banks, and where, admitting their delay, they have a strong intention to offset the increase by raising the full speed of interest rates. (+0.5 percentage point at a time for the ECB, this is unprecedented since the creation of the euro, and, for the bankers, the 75 point increase in June has not been seen since 1994), even if it means plunging the economy into the economy, the hope that the worst is, it seems, a sufficient driver for the return of a little risk-taking in the stock market. And, after all, maybe if the central bank of the US does not go too far to increase the rate, the recession – the real one, the one that destroys jobs, and not only the technical sense (two quarters of decline in GDP. ) – ultimately avoidable, as former Fed Chairwoman-turned-Treasury Secretary Janet Yellen thinks.
“The Federal Reserve (Fed) is expected to raise rates again (+0.75 points, within the range of 2.25-2.5%) at the meeting that ended on Wednesday July 27″believes Thomas Costerg, economist at Pictet Wealth Management, in line with market expectations, although others expect an increase of 100 basis points. “Even if the latest inflation numbers surprise again to the upside, no one at the Fed seems to want to move up a gear”, said Bruno Cavalier, chief economist of the private bank Oddo BHF. And after that? “In a context of the general deterioration of the economy that we have already seen in the GDP numbers and in the ISM-type surveys. [auprès des directeurs d’achats]we expect the Fed to slow the pace of rate hikes by 25 basis points at the next meeting in September, and beyond., said Thomas Costerg. This is actually, for the stock market, the most important question: what will the Fed do in September (there is no monetary policy committee meeting in August) and then? The market is currently pricing in a slight 60% chance of a 50bp rise in the fall, while the implied probability of a 75bp rise is only 34%.
“While last week was mainly focused on Europe (gas, Italy and ECB), this week is more dedicated to the United States, the highlight is the FOMC [comité de politique monétaire de la Fed] which ends on Wednesday”announced this morning, as a warning against a week that could, once again, be quick, Jim Reid, strategist at Deutsche Bank. “Unless we hear otherwise in the newspaper [étant donné que les forward guidances ont disparu, des deux côtés de l’Atlantique, les banques centrales ont pris l’habitude ces derniers temps de guider les anticipations à la dernière minute par voie de presse], it is expected that [la Fed] raised rates by 75 basis points”followed by two increases of 50 basis points, in September and November, and one of 25 basis points in December. “There are no new economic projects in this meeting, so the focus is on how the Fed will guide us to a world where there is no need to believe in the predictions of the central bank, because it has been proven they are not trustworthy. […]. However, the market will continue to swallow the indicators if the committee is leaning towards 50 or 75 for September. »
A funny recession
By September, central bankers, like investors, will see two new inflation reports, the numbers for August and for September. The Fed will legitimately wait to see things more clearly before making its decision. In the meantime, new figures on the direction of prices in Germany and, generally, in the euro zone will be published at the end of the week, as well as the GDP figures for the United States for the second quarter. The Atlanta Fed’s GDP now depicts a 1.6% quarter-over-quarter contraction on an annual basis, driven by a negative contribution from inventories, “false and difficult to estimate componentwe mean at Oddo BHF. Real GDP fell in the first quarter, this time due to foreign trade. According to the common but questionable definition, the United States should have been in recession for the first half of the year… A confusing recession in which employment, income and spending continue to rise. There is no denying the weakening of the American economy, but until June, it was not strong enough to cause a change in the labor market, nor, alas, to reduce inflation. »
Many other economic indicators will be published this week, such as the latest figures for spending on durable goods in the United States or for consumer confidence, and many companies will publish their accounts for the second quarter. And Vincent Bloy, market analyst for the broker IG France, to create a catalog: “Tuesday, Microsoft, Alphabet, Visa, LVMH, Coca-Cola, Mc Donald’s, General Electric, Dassault Systèmes and Rémy Cointreau. On Wednesday, the markets go to Meta, Qualcomm, T-Mobil, Rio Tinto, Boieng, ADP, Airbus, Kering, Daimler, Ford Motor, Danone, Saint Gobain, Carrefour, Worldline, Eramet, Vallourec, Atos, Fnac Darty. Thursday we will analyze the results of the first six months of the year from Amazon, Apple, Mastercard, Nestlé, Pfizer, L’Oréal, Shell, Intel, TotalEnergies, Sanofi, Volkswagen, Air Liquide, Safran, EDF, Stellantis, STMicroelectronics, Orange, Vivendi and Accor, before looking at Exxon Mobil, Chevron, Hermès, BNP Paribas, Vinci and Engie on Friday. » In general, in the United States, 175 companies in the S&P 500, more than a third of the total, must make their quarterly copy. In France, 30 Cac 40 companies operate.
Faced with the thickness of the program this week, so it is time for caution now on the Paris Stock Exchange, investors also did not forget that, last week, President Putin threatened to further reduce the half of Russian gas flows in Europe (by running Nord Stream. 1 at only 20% capacity compared to 40% at the moment), if the turbine – which was repaired in Canada – did not return to start from this week.
The sales volumes of the Cac 40, are extremely low, not even crossing the 2.5 billion euro mark today. As the end of the month approaches, we still sense investors’ desire to avoid a fourth consecutive month of index declines.
BNPwhich will release its accounts on Friday, more than 2% as investors hope for upside surprises in Friday’s print.
Engie also distinguished himself today, after the announcement, on Friday night, of an agreement in principle between the group and Belgium on the question of who will bear the cost of extending the life of the power plants Belgian nuclear power plants operated by Electrabel, a subsidiary. said Engie. And the agreement was favorable to the French.
With the exception of Cac 40, we note a decrease of almost 18% in the satellite operator. Eutelsat after confirming discussions on a merger with British OneWeb. Such an operation threatens low dividends and explodes French investment spending.