The relief is palpable on the stock market. After nearly five weeks of armed conflict, investors on Tuesday welcomed progress in peace talks between the Russians and Ukrainians, including the announcement of a reduction in Russian military activity around kyiv. A promising sign, which allowed the CAC 40 index to rebound Tuesday by 3.08%, to 6,792 points.
It has thus erased all the losses suffered since the start of the Russian invasion on February 24, after having rebounded by nearly 14% in the past three weeks. The improvement is general in Europe. The German DAX has regained 15.5% since March 8. The pan-European STOXX 600 index has already exceeded its February 23 level.
Banks and the automobile celebrate
“The market gets used to everything,” laconically notes Greg Hirt, director of multi-asset management at AllianzGI. Faced with the absence of a major financial accident linked to the implementation of Western sanctions, investors are hoping that the worst is now behind them. The companies and sectors most exposed to Russia, which had particularly suffered since the start of hostilities, thus pulled the markets up on Tuesday.
The hope of a diplomatic settlement of the conflict has allowed investors to project themselves into a more stable future, and to soon hope for more visibility on the state of the economy after more than a month of war at the gates of Europe. The renewed appetite for risk was all the greater as the prices of raw materials, and in particular of energy, also fell in the wake of the Russian announcements.
On the Paris Stock Exchange, Renault soared nearly 12% while Societe Generale and Alstom jumped more than 8%. Conversely, securities sought after the start of the conflict lost ground. Thales – the defense specialist within the CAC 40 – dropped 5%, finishing at the bottom of the Parisian index.
Professionals are cautious
But this optimism regarding the continuation of hostilities is far from being shared by all. “The negotiations are smoke and mirrors, the war will last,” warns Greg Hirt, who believes that the impact of the conflict on the European economy is not necessarily reflected in prices. “We are not in a bull market, the European indices are likely to start gradually falling over the coming months,” he adds.
He is not the only one to be cautious about the prospects for European markets. The CAC 40 is on its way to record its worst quarter since the start of 2020 and the outbreak of the pandemic. The Parisian index still shows losses of nearly 8% compared to its historic record of January 5 at 7,376 points, and few market professionals bet on a rapid return to such levels.
Morgan Stanley recently lowered its estimates for earnings growth this year and next. It must be said that in the face of inflationary pressures linked to soaring energy prices, margins are very likely to suffer and the purchasing power of consumers to take a hit. Household confidence has already marked time in France and Germany in March, to fall back to its lowest levels in more than a year.
In an attempt to curb soaring inflation, the European Central Bank seems determined to quickly initiate a tightening of its monetary policy . One more pitfall for the European stock markets, accustomed for several years to being continuously watered with liquidity. “We are walking on eggshells,” emphasizes Emmanuel Cau of Barclays. For European investors, “the complexity will be to navigate this uncertainty without the support of central banks”, he warns.