COVID-19 and monetary policies still hold back actions


by Marc Angrand

PARIS (Reuters) – Wall Street is expected to be stable at best on Tuesday and European stock markets retreat at mid-session, the deterioration of the health situation in Europe weighing on investor morale while the anticipation of an accelerated tightening of monetary policies promotes higher bond yields.

Futures contracts on the main New York indices signal virtual stability for the Dow Jones and the Standard & Poor’s 500 but a decline of 0.21% for the Nasdaq.

The S & P-500 and the Nasdaq have already ended lower on Monday after President Joe Biden’s decision to propose to Congress the reappointment of Jerome Powell as President of the Federal Reserve, seen by most investors as a signal acceleration of monetary policy tightening in the coming months.

In Paris, the CAC 40 lost 0.22% to 7,089.48 points around 11:55 GMT after having given up to 1.44% in the early morning. In London, the FTSE 100 dropped 0.06% and in Frankfurt, the Dax fell 0.76%.

The EuroStoxx 50 index is down 0.68%, the FTSEurofirst 300 0.88% and the Stoxx 600 0.79% after hitting a three-week low.

European investors remain concerned about the risk of further health restrictions on the continent in an attempt to curb the resurgence of the COVID-19 epidemic. And Washington’s decision to advise its nationals against travel to Germany and Denmark has only fueled their concern.

Goldman Sachs economists estimate that this “fourth wave” epidemic in Europe could cut growth in the euro area by 0.2 percentage point in the fourth quarter and then over the first three months of 2022.

In this context, the overall better than expected figures from the “flash” PMI activity indices published by IHS Markit were not enough to reassure. Especially since they underline the persistence of inflationary pressures, enough to feed the questions about the possibility that the European Central Bank (ECB) also accelerates the evolution of its monetary policy.

After the remarks of François de Villeroy de Galhau, the governor of the Banque de France, on the reduction of bond purchases, Isabel Schnabel, one of the members of the management board of the ECB, indeed declared that inflation should exceed forecasts in 2022, and Klaas Knot, the governor of the Dutch central bank, ruled that the inflationary outlook could justify a reduction in monetary support.

VALUES IN EUROPE

All the major sectors of the European quotation retreated with the exception of the commodities sector (+ 0.54%), which benefited from the rise in base metal prices.

In contrast, that of high technologies, sensitive to interest rate expectations, fell 2.1%.

The biggest drop in the Stoxx 600 is for Thyssenkrupp (-7.00%) after the sale of a block of shares by the Swedish activist fund Cevian.

On the Parisian market, the poor performance of the day is for the motorhome specialists Trigano, which fell by 10.36% after explaining that supply problems would slow down its production over the coming months.

RATE Yields on US Treasuries continue, but at a more moderate pace, the rise that began on Monday after the announcement of the White House’s decision to keep Jerome Powell at the head of the Fed: the ten-year mark still takes nearly two basis points at 1.6443% and the two-year, more sensitive to changes in rate expectations, is 0.6358% after peaking at 0.687%, its highest level since early March 2020 , before the outbreak of the coronavirus crisis.

On the European market, it is the latest statements from officials of the European Central Bank (ECB) that favor the rise in yields: the German ten-year has taken more than five basis points to -0.245% and its Italian equivalent has dropped back to- above 1%.

FOREX The dollar is taking some profit after hitting a new 16-month high against the other major currencies at the start of the day (-0.05%).

The euro thus climbs back to $ 1.1243 after falling to 1.1227, its lowest level since early July 2020.

As for emerging currencies, the Turkish lira continues to fall: down more than 8% against the dollar, it hit new historic lows after new statements by President Recep Tayyip Erdogan reinforcing the hypothesis of a further decline interest rates despite the strength of inflation.

OIL

The oil market suffers both from fears for demand linked to the epidemic situation in Europe and from the prospect of recourse by the United States to their strategic reserves, formalized by the White House.

Brent drops 0.79% to $ 79.07 a barrel and US light crude (West Texas Intermediate, WTI) 1.24% to $ 75.80.

OR

The price of an ounce of gold on the spot market, down 0.65%, fell back below the $ 1,800 mark, as a result of the appreciation of the dollar and the rise in bond yields.


Source: Challenges en temps réel : accueil by www.challenges.fr.

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