Global stock markets heckled after Fed announcements

Posted Jan 27, 2022, 9:19 AMUpdated on Jan 27, 2022 at 1:38 p.m.

The volatility in the markets since the beginning of the week gave an idea of ​​the expectations around the Fed meeting on Wednesday evening . Jerome Powell did not spare investors, not ruling out the possibility of a more marked tightening than expected of the US Federal Reserve’s monetary policy.

This Thursday morning, the European stock markets attacked the session in the red, before regaining ground. The CAC 40 was down 1.47% at the opening, before returning to equilibrium. At midday, it only lost 0.35%, to 6957.55 points. Ditto for the DAX, down at the opening of 1.48% before returning to -0.45%. The FTSE was even back in the green, at +0.41% after starting the day at -1.04%. The Eurostoxx 50, for its part, only lost 0.33%.

Tech and nursing homes struggling

Tech is suffering. The German group SAP, number one in professional software, notably lost more than 6% in Frankfurt, affected by investor risk aversion. In Paris, Dassault Systèmes abandoned more than 3% and Capgemini 1.40%

Among the biggest drops, the Elior group stood out with a fall of more than 12%. The collective catering specialist had to suspend its financial objectives for the current annual financial year on Thursday, citing a lack of visibility as to the impact of health restrictions. The Orpéa and Korian groups, the two French retirement home giants, were still struggling, down nearly 9%, after the announcement of the publication of a vitriolic book on the functioning of Orpéa.

On the other hand, the banking sector was well oriented, benefiting on the contrary from the prospect of higher rates. BNP Paribas and Société Générale were trading around +2% at midday.

A harsh tone

The Asian stock markets had, for their part, frankly accused the blow this morning. On the Tokyo Stock Exchange, the Nikkei fell 3.11% – the lowest since November 2020 – weighed down by technology stocks. In China, the large-cap CSI 300 lost 1.96%. On Wednesday evening, Wall Street also ended in disarray. After rising more than 3% after the Fed’s press release on Wednesday, the American technology index Nasdaq went into the red during the press conference of Fed Chairman Jerome Powell, to end up at equilibrium (+0 .02%). The Dow Jones had dropped 0.38% and the S & P 500, 0.15%.

While investors had anticipated a rate hike from the Fed in March, and several other hikes throughout the year, they were not expecting such an aggressive tone from the US central bank. The possibility of a rate hike at each Federal Reserve meeting is no longer ruled out.

Fed balance sheet shrinking worries investors

“Powell’s press conference hinted that the Fed may well raise rates at every meeting or even consider a 50 basis point hike if the need arises, as he has not taken the opportunity to exclude one of these possibilities […] that was not the message increasingly jittery markets wanted to hear,” CMC Markets analyst Michael Hewson told Reuters. BNP Paribas now estimates that the Fed could raise rates six times in 2022 compared to four previously.

Another subject of concern since the publication of the “minutes”: that of the reduction of the balance sheet of the Fed, that is to say the reduction of liquidities on the market. “The Fed mainly indicated that very soon after [la première hausse de taux], it would begin the operation to reduce its balance sheet. This theme which had cluttered the minutes of the meeting of December 14 and 15, 26 quotations on this theme, has become reality”, comments Philippe Waechter at Ostrum. Such execution speed could “push US long-term interest rates higher. This will result in a rise in long rates elsewhere in the world,” continues the market strategist.

The tougher tone from the Fed pushed up US debt market rates. The yield on two-year bonds, which is more sensitive to changes in rates, reached its highest level since March 2020, at 1.20% in the morning. That of ten-year Treasuries for its part relaxed to 1.83%, after reaching 1.87% on Wednesday evening.

Leave a Reply

Your email address will not be published. Required fields are marked *