Stock markets recover despite rising interest rates in Europe

Posted 7 Feb. 2022 at 19:05Updated Feb 7. 2022 at 07:17 PM

The tensions on the European bond market did not prevent the stock markets from rising again on Monday. In Paris, the CAC 40 closed up 0.83%, returning above the symbolic threshold of 7,000 points. The pan-European STOXX 600 index rose 0.68%.

The good session of European stock markets contrasts with the tensions observed on the bond front, where investors are still digesting the hardening of the tone of the European Central Bank. But it is not so surprising: “the markets are much more sensitive to variations in long-term rates in the United States than to developments in Europe,” underlines Gilles Guibout at AXA IM. The weight of the American markets is such that Europe often follows the music played on Wall Street.

More balanced European indices

The compression of valuation multiples thus began in January, triggered by a Federal Reserve that was more offensive than expected to fight inflation. The tech correction was not limited to Wall Street, but also affected Europe: the STOXX 600 tech index lost more than 12% in January, its highest monthly losses since October 2008.

“After the turbulence of last month, it is normal for the market to catch its breath”, underlines the manager. In addition, “European indices are more balanced than their American equivalents, they are more exposed to the values ​​of the ‘old economy’ which benefit from the rise in rates, in particular the banks”, he underlines.

The European stock market is also benefiting from strong earnings growth momentum. Since the start of the year, analysts have raised their expectations for 2022 more in Europe than across the Atlantic, a rare advantage for the stock markets of the Old Continent against Wall Street.

The Milan Stock Exchange in trouble

However, investors are not entirely insensitive to bond market developments. The only two European markets to have closed lower on Monday are Madrid and Milan, both more vulnerable to less support from the European Central Bank, given the high public debt of Spain and Italy.

In Italy, the FTSE MIB thus lost more than 1%, weighed down by the 3% drop in the electricity company Enel, which represents more than 12% of the index. The group risks suffering from the rise in interest rates, with a debt of more than 50 billion euros. The rating agency Fitch lowered its credit rating on Friday.

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