Another sharp drop in Europe, fear of recession dominates – 09/23/2022 at 18:25


A man walks past the Bourse street sign, near the Palais Brogniard, in Paris.

PARIS (Reuters) – European stock markets ended sharply lower again on Friday and Wall Street lost around 2% at mid-session, the increasingly precise threat of a recession prompting investors to desert risky assets while that the dollar continues to benefit from the rise in US rates.

In Paris, the CAC 40 closed with a decline of 2.28% (135.09 points) to 5,783.41 points, the lowest since March 2021. In London, the FTSE 100 lost 1.97% and in Frankfurt , the Dax dropped 1.97%.

The EuroStoxx 50 index ended down 2.29%, the FTSEurofirst 300 2.29% and the Stoxx 600 2.34%, the lowest since December 2020.

At the time of the close in Europe, Wall Street was widening its losses, the Dow Jones yielding 1.91%, the lowest since November 2020 the Standard & Poor’s 500 2.1% and the Nasdaq Composite 2.09%.

Two days after statements by Jerome Powell, the chairman of the Federal Reserve, suggesting that the latter was ready to drive the American economy into recession to reduce inflation, the first results of the S&P Global PMI surveys confirmed that Europe was also heading towards a period of contraction in activity, indeed that it had already entered one.

In the euro zone, “even if there are differences from one country to another, the headwinds are the same for all the economies of the bloc: a demand which weakens with the deterioration of purchasing power against a backdrop of high inflation and deteriorating global demand,” said Katharina Koenz, senior economist at Oxford Economics.

In the United States, Goldman Sachs lowered its target for the S&P 500 at the end of the year by 16%, to 3,600 points against 4,300, which implies an additional drop of nearly 5% by the end of December.

In a note written the day after the Federal Reserve’s announcements, David Kostin, an analyst for the American bank, explains that “a majority of equity investors have taken the view that a hard landing scenario is inevitable, and their priority is the timing, depth and duration of a possible recession as well as investment strategies for that scenario.”

For its part, Bank of America, in its weekly update on investment flows, stresses that the markets are still far from having finished with the shocks linked to inflation, the rise in interest rates and the recession.

Over the week as a whole, the S&P 500 is currently down more than 4.5%. In Europe, the Stoxx 600 lost 4.37% in five sessions and the CAC 40 4.84%.

VALUES

All the major sectors of the European rating ended the day in the red but the most marked declines were for that of energy, whose Stoxx index lost 5.87% and that of raw materials (-5.68 %), with the fall in oil and base metal prices (-3.3% at the end of the session for copper, -5.1% for nickel).

The banking sector in the euro zone, for its part, lost 3.44%: to fears of recession were added information from Reuters according to which the ECB is studying how to limit the cost of the interest it pays to credit institutions on their excess reserves.

Credit Suisse also fell 12.4% and recorded a historic low, the market fearing a new capital increase.

On the rise, M6 took another 8.09% while RTL Group awaited during the day the indicative offers to buy back its 48.3% stake.

CHANGES

On the currency market, the supremacy of the dollar is accentuated with the signs of a recession in progress or very close in the euro zone as in the United Kingdom.

The index, which measures its fluctuations against a benchmark basket, up 1.21% over the day, is at its highest since May 2002 and is heading for its strongest weekly increase since March 2020, a gain of nearly by 2.7%.

The euro, on the contrary, touched a new low of 20 years at 0.9726 dollar (-1.13%) and the pound sterling a new low of 37 years at 1.0995 dollar (-2.97% ).

The British currency is indeed suffering from the presentation of the Truss government’s recovery plan, which involves a sharp widening of the budget deficit and an increase in public debt.

RATE

The UK finance minister’s announcements also encouraged a further surge in UK sovereign yields, which dragged down those of the euro zone in their wake.

The British two-year jumped nearly 50 basis points to briefly exceed 4% and its German equivalent crossed the 2% mark in session for the first time since the end of 2008, before returning to 1.909%.

On the American market, the two-year is up seven points to 4.1925% and the ten-year three points to 3.7265%.

OIL

The oil market has increased its losses over the hours between fears of a deterioration in demand and an appreciation of the dollar, and it is now trading at its lowest since mid-January: Brent drops 5.03% to $85.91 a barrel and American light crude (West Texas Intermediate, WTI) fell 5.94% to 78.53 dollars.

Gasoline and diesel are also losing more than 5% on the American market.

(Written by Marc Angrand)

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