Market: US inflation carries European equities and weighs down the dollar
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by Laetitia Volga

PARIS (Reuters) – European stocks ended higher on Thursday, at multi-month highs, as investors continued to bet on a slowdown in rate hikes from the Federal Reserve after the announcement of a moderation in inflation in the United States. UNITED STATES.

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In Paris, the CAC 40 gained 0.74% to 6,975.68 points, its highest closing level since mid-February, just before the outbreak of war in Ukraine. The British Footsie gained 0.89% and the German Dax ended up 0.74%.

The EuroStoxx 50 index advanced 0.66%, the FTSEurofirst 300 0.68% and the Stoxx 600 0.63%, the highest since April.

At the time of the close in Europe, Wall Street was moving up moderately: the Dow Jones gained 0.5%, the Standard & Poor’s 500 0.14% while the Nasdaq Composite was almost stable (+0.05%) .

For the first time since May 2020, the consumer price index in the United States fell by 0.1% in December, bringing its increase over one year to 6.5% after a rise of 7.1 % one month ago.

In the eyes of some players, these figures could give Fed officials one more argument to moderate the pace of monetary tightening by the central bank and revise their rate projections, which currently peak at 5.1%.

“The market remains confident that the Fed will not hike rates as much as it indicated in the December projections. Fewer rate hikes create risk-friendly market momentum amid a weaker dollar,” he said. Axel Botte at Ostrum AM.

“However, it cannot be excluded that the reopening of China will induce an early rebound in oil prices. The improvement in the outlook is already visible in industrial metal prices. In this case, market expectations would reconverge towards the levels indicated by the FOMC (the Fed’s Monetary Policy Committee, editor’s note) (…) with, as a result, a risk of a stock market correction”, added the strategist.

CHANGES

The prospect of a slowdown in the rise in US rates is weighing on the dollar, which lost 0.59% against a basket of ten currencies, the lowest since June.

The euro, at more than 1.08 dollars, gained 0.57%.

The yen climbed to its highest since June against the greenback (+1.97%) in reaction to press reports that the Bank of Japan will study the side effects of its ultra-loose monetary policy at its meeting. next week.

“We could start to see a normalization of monetary policy from the BoJ, which would be a huge step for Japan and very positive momentum for the yen,” said Chris Turner at ING.

RATE

The announcement of a fall in prices in the United States was reflected on the bond market by a fall in yields on government bonds: the ten-year American fell below 3.5%, for the first time in a month, and the two-year fell to its lowest level in three months at 4.109%.

The trend in Europe followed: the ten-year German Bund yield ended the day down six basis points at 2.131%, a closing low since mid-December

VALUES

In Paris, video game publisher Ubisoft fell 14.03%, the biggest drop in session for almost seven years, after a warning on its annual results.

Orpea fell 17.55%, after a jump of more than 30% in the past three days, the group of retirement homes having reminded its investors that discussions to renegotiate its debt were still in progress and that its increase in planned capital would lead to “massive dilution”.

In the rest of Europe, Logitech International lost 16.87% after posting lower October-December results and lowering its sales outlook.

On the rise, Asos jumped 20.90%, with the British online fashion group forecasting a profit of 300 million pounds for its current financial year.

OIL

Oil prices, already supported by optimism about the reopening of China, amplified their progress after the figures for US inflation.

Brent rose 2.14% to 84.44 dollars a barrel and US light crude (West Texas Intermediate, WTI) rose 2.04% to 78.99 dollars.

(Laetitia Volga, edited by Bertrand Boucey)

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