Stocks rise ahead of ECB and Fed

Claude Chanju

PARIS (Reuters) – Wall Street was expected to rise on Wednesday ahead of announcements from the US Federal Reserve (Fed) and European stock markets, which saw a mid-session gain on bank stocks, while the European Central Bank (ECB) ) called an emergency meeting to discuss the recent sell-off in European government bonds. New York index futures signal a Wall Street open up 0.46% for the Dow Jones, 0.82% for the Standard & Poor’s 500 and 1.05% for the Nasdaq. In Paris, CAC 40 added 1.04% to 6,011.43 around 1145 GMT. In Frankfurt, the Dax holds 1.18% and in London the FTSE is up 1.32%.

The pan-European FTSEurofirst 300 rose 1.18%, the Eurozone EuroStoxx 50 rose 1.27% and the Stoxx 600 rose 1.17%.

The ECB decided to urgently convene its Governing Council because the evolution of borrowing costs in the currency bloc has recently been marked by a pronounced divergence between the prices of Germany, considered the most reliable issuer in the region, and those of heavily indebted countries. such as Italy, fueling the specter of regional fragmentation.

Thus, the yield spread (“spread”) between the ten-year German Bund and its Italian equivalent reached 252.9 basis points on Tuesday, the highest level since April 2020. On Wednesday, that spread returned to around 230 pips before the end of the ECB meeting.

“It is clear that the market is expecting some kind of intervention,” said Theuwe Mewissen, senior strategist at Rabobank, while Christine Lagarde, ECB president, assured last week that the organization would roll out a new tool to avoid any fragmentation.

According to sources with direct knowledge of the matter, the ECB press release is due in the morning after the meeting, which began at 900 GMT.

In the United States, the Fed’s monetary policy decisions are also expected at 1800 GMT after a two-day meeting, with agency president Jerome Powell scheduled to speak in half an hour.

Following Friday’s release of US consumer prices, which showed higher-than-expected inflation, markets are now estimating a 99.7% chance of a 75-point Fed rate hike this Wednesday, according to the CME Group Fedwatch barometer.

In terms of the day’s economic statistics, the Ifo Economics Institute said on Wednesday that it now expects Germany’s gross domestic product (GDP) to grow at 2.5% this year, up from 3.1% in March, with inflation expected at 6%. .8%, not 5.1%.

In the euro area, the trade deficit almost doubled in April to 32.4 billion euros, while industrial production growth slowed more than expected to 0.4% over the same period.

WALL STREET VALUES TO FOLLOW

Qualcomm added 0.6% in premarket trading after a European Union court overturned a $997 million fine the European Commission imposed on it four years ago for securing exclusive supplies of Apple chips.

VALUES IN EUROPE

In the pan-European Stoxx 600, except energy (-0.4%), all major segments are in positive territory, while finance (+1.8%) is in the lead. The banking division, which was hit recently by massive sales of Italian bonds, rebounded 3.1%.

In Rome, Unicredit, Intesa Sanpaolo and BPER Banca rose from 4.6% to 6%, while in Paris Société Générale, BNP Paribas and Crédit Agricole gained from 3% to 3.5%.

Excluding financials, H&M, which posted higher-than-expected second-quarter sales on Wednesday, shed 4.1% as investors worried about the group’s margins and sales levels that remained lower than pre-COVID-19 levels. Its competitor Inditex gives 0.1%.

Shares of Swiss chemical group Clariant rose 2.2% on a 30% increase in turnover in the first quarter.

RATES Eurozone bond yields fell sharply after the announcement of the ECB meeting.

The ten-year Italian bond rate, which peaked since 2013 at 4.305%, fell 27.6 basis points to 3.942% and is approaching its biggest single-session drop since March 1.

Its German equivalent with the same maturity fell six basis points to 1.669%.

The French OAT rate fell 11 points to 2.262%.

In the United States, the 10-year US Treasury yield fell 11 points to 3.3715% after reaching its highest level since April 2011 at 3.498% on Tuesday.

CHANGES

On the foreign exchange market, the euro, which added 0.61% to $1.0478, is benefiting from the announcement of an extraordinary meeting of the ECB, but remains vulnerable against the dollar in anticipation of the decision of the US Central Bank.

“This morning we have some depreciation of the euro due to the actions of the ECB, but otherwise the dollar remains strong,” said Nils Christensen, an analyst at Nordea. “We expect more restrictive monetary policy in the euro area, but even more restrictive in the United States, and this will be an important factor for the dollar against the euro,” he added.

The index, which measures the swing of the dollar against a basket of base currencies, shed 0.69% after hitting its highest level since December 2002 a day earlier.

OIL

Oil prices are falling as concerns about economic conditions and demand outweigh supply tensions ahead of the Fed’s interest rate decision.

A barrel of Brent grade fell 0.57% to $120.48, a barrel of American light oil (West Texas Intermediate, WTI) lost 0.61% to $118.19.

(Written by Claude Shenju, edited by Keith Entringer)