The bond crisis and the risk of recession recover – 09/28/2022 at 08:36


File photo of a man under an umbrella in the colors of the British flag next to the London Stock Exchange building

PARIS (Reuters) – Major European stock markets are expected to fall on Wednesday amid ever-increasing economic fears, a recent surge in bond yields and persistent questions about Britain’s budgetary credibility. .

Index futures suggested a drop of 0.53% for the CAC 40 in Paris, 1% for the Dax in Frankfurt, 0.74% for the FTSE 100 in London and 0.87% for the Euro Stoxx 50.

Everything ended in the red on Tuesday after spending most of the day in positive territory, the information of a possible sabotage of the Nord Stream 1 and 2 gas pipelines in the Baltic Sea revived the avoidance of risk at the end of the session.

The broad European Stoxx 600 index now shows 10 declines in the last 11 sessions.

Market sentiment remains dominated by fears of a marked slowdown in global growth and tighter monetary policies, which continue to prompt large sell-offs in bond markets.

General nerves were also caused by questions about the ability of the British government to regain market confidence after the shock caused by the recovery plan.

The International Monetary Fund (IMF) publicly criticized London’s fiscal policy on Tuesday, saying it risks widening inequality and weakening monetary policy. Meanwhile, Moody’s Investors Service warned that more unfunded tax breaks could damage the government’s credibility.

RATE

The yield on ten-year US Treasuries hovered around the 4% mark in Asian trade, the highest in 12 years, after jumping 50 basis points in a week.

The five-year hit a 15-year high of 4.251% and the two-year, at 4.2788%, was the highest since 2007.

The St. Louis Federal Reserve Chairman James Bullard argued for further rate hikes on Tuesday, his Chicago counterpart Charles Evans said the fed funds rate should be raised by at least 100 additional basis points eventually. of the year and in Minneapolis, Neel Kashkari, ensured that the leaders of the institution were united by stimulating a monetary policy of “opportunity offensive”.

Analysts at Wells Fargo now estimate that the key rate at the US central bank should be between 4.75% and 5% before the end of the first quarter of 2023.

In Europe, the ten-year German, which jumped 14 points on Tuesday, returned a little in early trade to 2.24%.

ON WALL STREET

The New York Stock Exchange ended in turmoil on Thursday, the words of Fed officials overcame the jump observed at the beginning of the session.

The Dow Jones index fell 0.43%, or 125.82 points, to 29,134.99 and the Standard & Poor’s 500 lost 7.44 points, or 0.21%, to 3,647.29 points, its lowest. closing level of two years, while the Nasdaq + Composite improved (26+ points 0.25%) to 10,829.50, thanks among other things to the gains of Tesla (+2.51%) and Nvidia (+1 .51%) .

Futures currently suggest an opening of 0.3% to 0.8%, the seventh consecutive decline in the S&P 500, which is approaching its 200-day moving average (3,590 points). , a key technical threshold.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index ended up 1.5%, the lowest since early July. The technology suffered in particular from the information from Bloomberg that Apple has stopped increasing the production of its new iPhones this year due to the lack of sufficient growth in demand.

In China, the Shanghai SSE Composite lost 0.89% and the CSI 300 0.96%. The real estate sector suffered from reports of a default by promoter CIFI Holdings, which did not decline and fell 26.77% in Hong Kong.

MSCI’s index of Asian markets outside Japan fell to its lowest since April 2020.

CHANGES

The renewed risk aversion is also reflected in a new increase in the dollar, which appreciated by 0.27% against a benchmark basket, in a new high of more than 20 years.

This increase is the cost of the euro, which fell to 0.9559 (-0.34%), the lowest since June 2002, and above all the pound sterling, which fell 0.49% to 1, 0678 dollars.

The Chinese yuan, meanwhile, hit a new all-time low of 7.2350 per dollar.

wool

The oil market retreated despite the risk of Hurricane Ian disrupting production in the Gulf of Mexico, the trend was mainly influenced by the fear of a decrease in global demand and the rise of the dollar.

In addition, American Petroleum Institute (API) figures obtained from market sources show a sharp increase in crude oil inventories in the United States.

Brent fell 1.4% to 85.06 dollars a barrel and US light crude (West Texas Intermediate, WTI) 1.34% to 77.45 dollars.

(Writing by Marc Angrand, editing by Kate Entringer)

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