“The ECB created volatility, not a trend”. Economist Christian Parisot’s commentary for analyst firm Aurel BGC dates from Friday morning, but is still very relevant today. This Monday, four days after the European Central Bank buried front management and raised key rates by 50 basis points in exchange for the hawks agreeing to implement – made urgent by Italy’s political crisis – an anti-fragmentation tool (an announcement that was initially welcomed until a long list of conditions were announced). Bedroom 40 ended the session with a small gain of 0.33% to 6,237.55 points after losing about 0.6% this morning.
“Feelings have become incredibly changeable” in recent weeks, says Neil Birrell, chief investment officer at asset manager Premier Mitton Investors in London. “Bad news can be perceived – attention, acrobatics in logic – as good news according to him. Given the deterioration in activity, whether in manufacturing or services, and given the deterioration in demand due to the rapid rise in prices, the stock market hopes that perhaps the central banks of the big banks will be less loose in the tightening of monetary policy.
In a world caught off guard by high inflation, a kind of fifth horseman of the Apocalypse, against which central banks are struggling, and in which, admitting their delay, they are determined to regain control by raising interest rates all the way up. (+0.5 of a percentage point at once for the ECB, unprecedented since the creation of the euro, and for the Fed a hike of 75 points in June, not seen since 1994), even if it means plunging the economy into recession. that potentially the worst is behind us is enough of a driver to return some risk to the stock market. And in the end, perhaps if the US central bank doesn’t go too far with rate hikes, a recession could eventually be avoided, according to former Fed chair-turned-US Treasury Secretary Janet Yellen.
“The Federal Reserve System (Fed) is expected to raise rates sharply again (+0.75 points, in the range of 2.25-2.5%) at the meeting, which will end on Wednesday, July 27″according to Thomas Kosterg, economist at Pictet Wealth Management, in line with market expectations, although some expect a 100 basis point increase. “While the latest inflation numbers have once again hit the upside, no one at the Fed seems willing to tighten gears”, notes Bruno Cavalier, Chief Economist at Oddo BHF private bank. And after? “In the context of the general deterioration of the economy, which we are already seeing in GDP numbers and in surveys like ISM [auprès des directeurs d’achats]we expect the Fed to slow the pace of rate hikes to 25 basis points at the next meeting in September and beyond.”, says Thomas Kosterg. This is really the most important question for the stock market: What will the Fed do in September (there is no monetary policy committee meeting in August) and beyond? Currently, the market estimates a little more than 60% probability of a 50 bp increase. in autumn, while the assumed probability of an increase of 75 bp. is only 34%.
“While last week was mainly focused on Europe (gas, Italy and the ECB), this week is mainly focused on the United States, with the FOMC as the highlight [comité de politique monétaire de la Fed] which ends on Wednesday”Jim Reid, a strategist at Deutsche Bank, announced this morning as a warning that the week could be volatile again. “Unless we hear otherwise in the newspaper [étant donné que les forward guidances ont disparu, des deux côtés de l’Atlantique, les banques centrales ont pris l’habitude ces derniers temps de guider les anticipations à la dernière minute par voie de presse], it is expected that [la Fed] raises rates by 75 basis points”followed by two 50 basis point increases in September and November and one 25 basis point increase in December. “There will be no new economic forecasts at this meeting, so the focus will be on how the Fed is leading us into a world where no one should trust central bank forecasts anymore because they have proven to be so unreliable. […]. However, the market will continue to look for clues as to whether the committee is leaning towards 50 or 75 in September. »
By September, central bankers, like investors, will see two new inflation reports, the August and September numbers. The Federal Reserve will legitimately wait to see the situation more clearly before making a decision. Meanwhile, new figures on the direction of prices in Germany and, more broadly, in the Eurozone, will be released later in the week, as will second-quarter United States GDP figures. The Atlanta Fed’s GDP now forecasts a quarterly contraction of 1.6% year-on-year due to a negative contribution from inventories, “a volatile and difficult to assess componentexplained in Oddo BHF. Real GDP has already fallen in the first quarter, this time because of foreign trade. According to a commonly accepted but dubious definition, the United States would have been in recession in the first half of the year… An interesting recession when employment, income and spending continued to rise. The weakening of the US economy is undeniable, but until June it was not strong enough to cause a turnaround in the labor market, nor, unfortunately, to reduce inflation. »
Many other economic indicators will be released this week, such as the latest data on durable goods spending in the United States or data on consumer confidence, and a large number of companies will release their second quarter reports. And Vincent Bloy, market analyst at broker IG France, to compile the catalog: “Tuesday, Microsoft, Alphabet, Visa, LVMH, Coca-Cola, Mc Donald’s, General Electric, Dassault Systèmes and Rémy Cointreau. On Wednesday, the markets will focus on Meta, Qualcomm, T-Mobil, Rio Tinto, Boieng, ADP, Airbus, Kering, Daimler, Ford Motor, Danone, Saint Gobain, Carrefour, Worldline, Eramet, Vallourec, Atos, Fnac Darty. On Thursday, we will analyze the results for the first six months of the year from Amazon, Apple, Mastercard, Nestlé, Pfizer, L’Oréal, Shell, Intel, TotalEnergies, Sanofi, Volkswagen, Air Liquide, Safran, EDF, Stellantis, STMicroelectronics, Orange, Vivendi and Accor, ahead of Exxon Mobil, Chevron, Hermès, BNP Paribas, Vinci and Engie on Friday. » A total of 175 S&P 500 companies in the United States, more than a third of the total, are required to make a quarterly copy.
Faced with the density of this week’s program, it’s time to be cautious today on the Paris Stock Exchange, investors have also not forgotten that last week President Putin threatened to cut Russian gas flows to Europe by half again (launch of Nord Stream 1). only 20% capacity compared to 40% now) unless the turbine, which was undergoing repairs in Canada, returned earlier this week.
Trading volumes on the Cac 40, extremely low, did not even cross the €2.5 billion mark today.