Europe ends in the red, rate concerns ahead of ECB

Claude Chanju

PARIS (Reuters) – European stocks closed lower and Wall Street traded lower mid-session amid worries about global growth, inflation and central bank tightening, factors that are fueling risk aversion again ahead of the European Central jar. (ECB) meeting.

In Paris, the CAC 40 fell 0.8% to 6,448.63. British Footsie lost 0.08% and German Dax lost 0.76%.

The EuroStoxx 50 fell 0.47%, the FTSEurofirst 300 fell 0.64% and the Stoxx 600 fell 0.57%.

Rising bond yields in the context of expectations of higher rates in the face of high inflation, which may further accelerate due to a new jump in oil prices, is putting pressure on stock markets.

The yield on 10-year German bonds, the benchmark for the euro zone, rose 6.3 points to 1.350%, the highest since 2014.

Its French equivalent with the same maturity ended up 6.5 basis points to 1.871% after peaking for the session since 2014 also at 1.883%.

Eurozone money markets now expect the ECB to raise rates by 75 bps by September, with the first 25 bps hike in July.

In the US, where monthly consumer price data will be released on Friday, 10-year Treasury yields rose 4.8 points to 3.0178%.

Today’s economic data also acted as a brake on risk-taking as the Organization for Economic Co-operation and Development (OECD) raised inflation estimates in member countries to 8.5% this year and cut global GDP growth to 3% this year.

Industrial production in Germany also increased less-than-expected in April (+0.7% versus an expected increase of 1%), while GDP growth in the eurozone edged up slightly in the first quarter on an annualized basis.

VALUES IN EUROPE

In Europe, financial (-1.2%) and banks (-0.9%) suffered among the biggest downturns since the warning issued by Credit Suisse. The Swiss bank, which has been declining for most of the session after saying it expects new losses in the second quarter, ended up 3.7% on news that State Street was considering a takeover bid by Credit Suisse.

Deutsche Bank fell 1.9%, HSBC 1.7%, BNP Paribas 0.7%, Société Générale 0.6%.

Elsewhere, Inditex, parent company Zara, jumped 6.3% on an 80% increase in net income from February to April to 760 million euros.

High tech (+0.6%), one of the best performers after energy, continued to benefit from bargain purchases following the Nasdaq on Wall Street.

Korian’s shares fell 9.5% after Le Parisien reported complaints from families against a nursing home manager. Its rival Orpea, whose headquarters were raided, sold 3.1%.

ON WALL STREET

At the close in Europe, the Dow Jones fell 0.25%, the Standard & Poor’s 500 0.37% and the Nasdaq 0.06%.

Eight of the 11 major sectors of the S&P-500 were in the red, with manufacturing, consumer spending and real estate showing some of the biggest losses. In contrast, the energy sector, which posted a 65% year-to-date gain, was one of the biggest gains, with Brent oil trading at $122 a barrel.

Shares in Intel fell 3.8%, the biggest drop in major tech stocks, as a Citigroup note predicted a difficult second quarter for the semiconductor giant.

CHANGES

The euro, which rose ahead of the ECB meeting, is trading at a seven-year high against the yen at 142.84. The Japanese currency, which continues to decline from ten consecutive sessions, is suffering from a policy that the country’s central bank considers ultra-soft.

Against the dollar, the European single currency rose 0.36% to 1.0737, well above its recent low of $1.03. The dollar, for its part, was stable (+0.03%) against a basket of base currencies.

OIL

Oil prices rose on the back of growing demand for gasoline in the US, despite rising prices at gas stations. They are also supported by the prospect of strong demand in China, where medical restrictions are being gradually lifted.

Brent crude rose 1.69% to $122.62 a barrel, the best closing since May 31. The price of US light oil (West Texas Intermediate, WTI) rose 1.53% to $121.24 and reached its highest level since March 8.

(Written by Claude Chanju, edited by Jean-Stephan Bross)