Slowdown seen in Europe ahead of new central bank decisions (updated)

by Claude Chendjou

PARIS (Reuters) – Major European stock markets are expected to fall on Thursday at the open, as investors continue to show caution ahead of monetary policy announcements in the euro zone and the United Kingdom and after statements of the President of the Federal Reserve. government (Fed) deemed it premature to mention a reduction in interest rates.

Index futures suggest a decline of 0.65% for the CAC 40 in Paris, 0.64% for the Dax in Frankfurt, 0.35% for the FTSE 100 in London and 0.73% for the EuroStoxx 50.

The Fed on Wednesday announced a half-point increase in its key interest rate and shared new economic projections that indicate at least a further rate hike of 75 basis points in 2023 and very limited monetary growth. American economy.

Fed Chairman Jerome Powell’s remarks at the conference following the announcements were seen not only as tough but also fueled fears of a recession, causing the yield curve to invert.

“This is a very hawkish message from the Fed: a terminal rate significantly higher than in September with real upside risks as well,” TD Securities analysts wrote in a note, referring to the projection of The Fed’s rate peaked above 5%, a level not seen since the Great Recession of 2007.

Interest rate hikes of 50 basis points from the European Central Bank (ECB), Bank of England (BoE) and Swiss National Bank (SNB) are also expected on Thursday.

In terms of economic statistics, investors will notice at 12:30 pm the monthly data on retail sales in the United States. The Reuters consensus was calling for a contraction of 0.1% month-on-month after a 1.3% gain in October.

In China, retail sales fell 5.9% in November, the sharpest contraction since May, while industrial production slowed to 2.2% year on year and real estate investment fell 19.9%, to the lowest over 20 years.

PRICES TO FOLLOW IN EUROPE:

Hennes & Mauritz (H&M) on Thursday reported a 10% increase in net sales year-on-year for its fourth fiscal quarter, which runs from September to November, a figure slightly above expectations of the market.

ON WALL STREET

The New York Stock Exchange ended lower on Wednesday, after a volatile session, after the Fed decided to raise interest rates by 50 basis points, as expected, but said it expected the higher rates for longer durations.

The Dow Jones index fell 0.42%, or 142.29 points, to 33,966.35 points.

The broader S&P-500 lost 24.33 points, or 0.61%, to 3,995.32 points.

The Nasdaq Composite fell for its share by 85.93 points (0.76%) to 11,170.89 points.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index ended up 0.37% at 28,051.7 points and the broader Topix fell 0.18% at 1,973.9 points, cooled by concerns over Fed projections.

In China, the Shanghai SSE Composite fell 0.25% and the CSI 300 fell 0.07% after data showed further deterioration in China’s economy.

RATE

In Asian trading, the yield on the ten-year US bond fell to 3.49% and the two-year to 4.24%, while the “spread” between these two maturities fell to -75.2 points, an inversion that signals a recession. in a short time. horizon.

In Europe, the ten-year German Bund yield, which ended on Wednesday at 1.93%, supported by information from Reuters that forecasts presented on Thursday by the ECB will include inflation still above 2% in 2025, takes another five points on Thursday to 1.98 %.

CHANGES

The expected increase in interest rates in the United States in the long term supported the dollar advancing 0.22% against a basket of reference currencies.

The euro fell to 1.0653 dollars (-0.27%) and the pound dropped 0.29% to 1.2385 dollars ahead of the ECB and BoE decisions.

OIL

Oil prices were in a downward trend in Asian trade on dollar strength, while the prospect of continued monetary tightening by central banks fueled fears about demand.

Brent lost 0.79% to 82.05 dollars a barrel and American light crude (West Texas Intermediate, WTI) 0.98% to 76.52 dollars.

(Written by Claude Chendjou, edited by Matthieu Protard and Blandine Hénault)

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