A man walks past the Bourse street sign near the Palais Brogniard in Paris.
PARIS (Reuters) – European stock markets closed sharply lower again on Friday and Wall Street lost around 2% mid-session, as the increasingly precise threat of a recession prompts investors to flee assets from risk while the dollar continues to benefit from the rise in US rates.
In Paris, the CAC 40 closed down 2.28% (135.09 points) to 5,783.41 points, the lowest since March 2021. In London, the FTSE 100 lost 1.97% and in Frankfurt , the Dax fell 1.97%.
The EuroStoxx 50 index closed down 2.29%, the FTSEurofirst 300 2.29% and the Stoxx 600 2.34%, the lowest since December 2020.
At the time of closing in Europe, Wall Street extended its losses, the Dow Jones yielded 1.91%, the lowest since November 2020, the Standard & Poor’s 500 2.1% and the Nasdaq Composite 2.09% .
Two days after statements by Jerome Powell, chairman of the Federal Reserve, suggesting that the latter was ready to take the US economy into recession to reduce inflation, the first results of the S&P Global PMI surveys confirmed that Europe was also it was heading for a period of contraction in activity, in fact it had already entered one.
In the euro zone, “although there are differences from one country to another, the headwinds are the same for all the economies of the block: a demand that weakens with the deterioration of purchasing power in a context of high inflation and deterioration of the global demand,” said Katharina Koenz, a senior economist at Oxford Economics.
In the US, Goldman Sachs lowered its year-end target for the S&P 500 by 16% to 3,600 from 4,300, implying a further drop of around 5% at the end of December.
In a note written the day after the Fed’s announcements, US banking analyst David Kostin explained that “most equity investors have viewed a hard landing scenario as inevitable, and their priority is timing, depth and duration of a possible recession, as well as investment strategies for that scenario.
For its part, Bank of America, in its weekly update on investment flows, highlights that the markets are still far from having finished with the shocks linked to inflation, the rise in interest rates and the recession.
For the week as a whole, the S&P 500 is currently down more than 4.5%. In Europe, the Stoxx 600 lost 4.37% in five sessions and the CAC 40 lost 4.84%.
All the major sectors of the European rating ended the day in the red, but the most pronounced decreases were energy, whose Stoxx index lost 5.87%, and raw materials (-5.68%), with the drop in oil and basic metal prices (-3.3% at the end of the session for copper, -5.1% for nickel).
The banking sector in the euro zone, for its part, lost 3.44%: fears of recession were added to information from Reuters according to which the ECB is studying how to limit the cost of the interest it pays to credit institutions for its excess reserves.
Credit Suisse also fell 12.4% to a record low, with the market fearing a new capital increase.
On the rise, M6 took another 8.09% while RTL Group waited during the day for indicative offers to buy back its 48.3% stake.
In the foreign exchange market, the supremacy of the dollar is accentuated by the signs of an ongoing or very close recession in both the euro zone and the United Kingdom.
The index, which measures its fluctuations against a benchmark basket, up 1.21% over the day, is at its highest level since May 2002 and headed for its strongest weekly rise since March 2020, a gain almost 2.7%.
The euro, by contrast, hit a new 20-year low at $0.9726 (-1.13%) and the British pound hit a new 37-year low at $1.0995 (-2.97%).
In fact, the British currency is suffering from the presentation of the Truss government’s recovery plan, which implies a sharp expansion of the budget deficit and an increase in public debt.
The UK finance minister’s announcements also encouraged a further rise in UK sovereign yields, dragging those in the euro zone lower in its wake.
Britain’s two-year bond jumped almost 50 basis points to briefly break above 4% and its German equivalent crossed the 2% mark in the session for the first time since late 2008, before returning to 1.909%.
In the American market, the two-year bond rose seven points to 4.1925% and the ten-year bond rose three points to 3.7265%.
The oil market has increased its losses over the hours between fears of a deterioration in demand and an appreciation of the dollar, and is now trading at its lowest level since mid-January: Brent falls 5.03% to 85.91 dollars a barrel and light American crude (West Texas Intermediate, WTI) fell 5.94% to 78.53 dollars.
Gasoline and diesel also lose more than 5% in the US market.
(Written by Marc Angrand)