Europe ends in the red, inflation and growth worries

PARIS (Reuters) – European stocks closed lower on Tuesday amid fears of a rapid rate hike and lower growth forecasts for the global economy, but Wall Street moved against Europe’s current mid-session, mainly thanks to corporate results.

In Paris, the CAC 40 ended with a loss of 0.83% to 6,534.79 points. The British Footsie fell 0.2% and the German Dax 0.07%.

The EuroStoxx 50 index fell 0.47%, the FTSEurofirst 300 0.7% and the Stoxx 600 0.77%.

As part of the release of its global economic outlook, the International Monetary Fund (IMF) announced on Tuesday that it expects global growth of 3.6% in 2022 for this year in January, 0.8 percentage points lower than expected. 0.2 point less for next year due to the war in Ukraine.

The IMF added that inflation now poses “a clear and very current threat” to many countries as the Russian-Ukrainian conflict puts the global financial system to the test.

On Monday, the World Bank also lowered its global growth forecast for this year by nearly a percentage point from 4.1% to 3.2% because of the war in Ukraine.

According to Ukrainian authorities, the Russian army captured a small town in the Luhansk region on Tuesday, the first since the outbreak of the “battle of Donbass”, presented by Moscow as a “new phase”.

This war, contributing to the price hikes, is itself fueling the rise in bond yields, increasing pressure on central banks to raise their interest rates.

James Bullard, chairman of the St. Louis Federal Reserve, reiterated Monday that he wants interest rates to rise to 3.5% by the end of the year in light of inflation at its 40-year high.

In Europe, the lack of signals from the European Central Bank (ECB) about a possible acceleration of its monetary tightening has revived the prospect of an interest rate hike.

“It’s no longer a question of whether the ECB will raise its interest rates by the end of the year or not, I think so,” said François Savary, investment director at Prime Partners, an asset manager.

Sources also told Reuters last week that the ECB could raise interest rates as early as July.

The ten-year Bund’s yield finished in 7.6 basis points to 0.916% after rising 0.93%, the highest level since July 2015. The French equivalent of the same maturity rose 4.4 points to 1.398%, after peaking since September 2014, at 1.414%. For its part, 30-year US Treasury yields reached the 3% threshold for the first time since early 2019 and peaked at 2.924% over ten years since the end of 2018.

VALUES IN EUROPE

On the pan-European Stoxx 600, the new burst of results released by companies did not reassure investors about the impact of the conflict in Ukraine and high inflation on their accounts.

Cosmetics giant L’Oréal, which will publish quarterly sales after the close, fell 2.9%.

Scor lost 5.1% after the French reinsurer warned its first quarter results would be impacted by the Russian-Ukrainian conflict.

On the plus side, animal health specialist Virbac (+9.9%) was driven by the increase in its annual sales growth target, while Carrefour (+2%) benefited from a change recommendation from Berenberg.

At sector level, only two major compartments escaped the decline: energy (+0.58%) and industry (+0.35%). TotalEnergies gained 1.4% and BP 0.4% in a volatile market.

AT WALL STREET

Towards the close in Europe, the Dow Jones rose 1.1%, the Standard & Poor’s 500 1.3% and the Nasdaq 1.9% as optimism about corporate earnings temporarily took precedence over fears of accelerating rate hikes .

“The earnings season is distracting some of the attention that has been very much focused on the correlation between bond returns and the decline in growth stocks,” said Art Hogan, a market strategist at National Securities.

Johnson & Johnson rises more than 3% on quarterly profit above market expectations. The group also increased the amount of dividend paid to shareholders.

Technology stocks such as Microsoft (+1.3%), Apple (+1.2%) and Amazon (+3%) are resisting the upward movement in bond yields.

Of the 49 S&P 500 companies that have already released their first quarter results, 79.6% have so far beaten earnings forecasts, according to data from Refinitiv, compared to 66% overall.

CHANGES

The dollar rose 0.20% against a basket of reference currencies on Tuesday, after hitting its highest level since May 2002 against the yen at 128.765 and hitting a two-year high against the euro at 1. 0756. The greenback is supported by high US Treasury yields and policy divergences from the Fed, the ECB and the Bank of Japan.

The euro will trade at $1.0791 at the close of trading in Europe.

OIL

The oil market, which is volatile, is in decline at the time of the closing of the stock markets in Europe, punished by the lowering of the economic forecasts of the IMF.

A barrel of Brent fell 4.84% to $107.72 and US light crude (West Texas Intermediate, WTI) 5.01% to $102.79.

(Report Claude Chendjou, edited by Sophie Louet)

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