Europe set to fall as inflation worries rise

Letitia Volga

PARIS (Reuters) – Major European stock markets are expected to fall on Monday as the latest U.S. inflation data revived fears of aggressive monetary tightening by the Federal Reserve, while the health situation in Beijing increases uncertainty for the global economy. growth.

Futures contracts are down 2.09% for the Paris CAC 40, 1.72% for the Dax in Frankfurt, 1.05% for the FTSE in London and 1.86% for the EuroStoxx 50.

In Europe, therefore, the trend should turn negative again, which continues to be affected by higher-than-expected growth in consumer prices in the United States, as the Federal Reserve’s (Fed’s) monetary policy announcements take shape on Wednesday.

Investors fear that an acceleration in US inflation to 8.6% for the year, the highest level since December 1981, will force the US central bank to tighten monetary policy at the risk of a blow to the economy.

Markets estimate the likelihood of a Fed rate hike of half a point on Wednesday at 80%, and 75 basis points at 20%.

The Bank of England (BoE), which meets on Thursday, is also set to raise its key rate for the fifth time since December.

Fears for the global economy are further fueled by the COVID-19 crisis in China. Beijing’s most populous district, Chaoyang, announced on Sunday several large-scale testing campaigns to stem the spread of the coronavirus.

VALUES TO FOLLOW:

ON WALL STREET

The New York Stock Exchange closed lower on Friday after the publication of statistics showing the strength of inflation in the US.

The Dow Jones fell 2.73% to 31,392.79, the S&P-500 fell 2.91% to 3,900.73 and the Nasdaq Composite fell 3.52% to 11,340.02.

For the week, the S&P lost 5.06%, the Dow 4.58% and the Nasdaq 5.60%, the worst week since the one that ended on January 21st.

Futures contracts are currently pointing down from 1.46% to 2.32% at the open.

IN ASIA

The fall on Wall Street on Friday affected the trend in Asia, where the Nikkei on the Japan Stock Exchange shed 3.01% to fall below 27,000 points for the first time in two weeks.

In China, the Shanghai SSE Composite lost 1.52% and the CSI 300 lost 1.8%.

EVALUATE

Selling in the US bond market continues for the fourth consecutive session after inflation rebounded, pushing yields higher.

The price of ten-year Treasury bonds rose more than one basis point to 3.1687% after a five-week peak of 3.202%. The two-year yield rose ten basis points to 3.1409%, the highest level since December 2007.

In Europe, the yield on German bonds fell slightly in early trading, to 1.489%.

CHANGES

The dollar gained 0.34% against a basket of benchmark currencies and peaked against the yen since 1998 at 135.17.

“Rising overseas yields and energy prices, combined with continued dovishness by the Bank of Japan, pushed the dollar/yen to a more than 20-year high,” Barclays analysts said in a note.

At the same time, the euro lost 0.3% around $1.048.

The British pound is down against the US dollar and the euro after the British economy unexpectedly contracted 0.3% in April, while the Reuters consensus forecast was 0.1%.

In terms of cryptocurrencies, Bitcoin fell to its lowest level since December 2020 at $24,888.88 as platform Celsius Network announced it would stop withdrawals and transfers between accounts due to “extreme market conditions”.

OIL

The oil market is trading in the red as a surge in COVID-19 cases in Beijing dampened hopes for a quick recovery in China’s oil demand amid worries about the global economic outlook due to rising US inflation.

The price of Brent crude fell 1.72% to $119.91 a barrel, while US light oil (West Texas Intermediate, WTI) fell 1.79% to $118.51.

METALS

General risk aversion and fears of a health crisis in China are driving down base metal prices, with aluminum reaching a six-month low of $2,643.50/t and copper hitting a new two-week low.

Futures prices for iron ore in the Dalian market in China are also declining. The September contract reached a nearly two-week low of 891 yuan.

(Written by Letitia Volga, edited by Bertrand Busy and Keith Entringer)