by Laetitia Volga

PARIS (Reuters) – European stock markets are expected to open lower on Wednesday, still under the impact of statements by Jerome Powell, the chairman of the Federal Reserve, who opened the door to larger rate hikes to fight against too high inflation .

The “futures” on indices show a decline of 0.25% for the CAC 40 in Paris, 0.35% for the Dax in Frankfurt, 0.23% for the FTSE in London and 0.3% for the Euro Stoxx 50.

Heard Tuesday by the US Senate Banking Committee, Jerome Powell adopted a decidedly more restrictive tone than what the markets expected, saying that the monetary institution could have to raise its rates more than expected in response to the strength of the US economy.

The main effect of these remarks was to revive speculation on the possibility that the Fed will return to rate hikes of half a point at its next meeting in two weeks, an unfavorable outlook for equities but which benefits the dollar.

This hypothesis is now widely favored, with a probability of 73% against 30% on Monday, according to the real-time barometer FedWatch.

“Such a decision would probably be misguided and would show that the central bank does not know what it is doing,” said Michael Hewson at CMC Markets. “It’s far better to do another 25-point hike and change the dot plot to indicate that more 25-point hikes are likely to follow. “.

Jerome Powell will be heard at 3:00 p.m. GMT in the House of Representatives this time, but investors are now mainly waiting for the publication of the US Department of Labor’s monthly report on Friday, then the inflation figures next week.

AT WALL STREET

The New York Stock Exchange ended sharply lower on Tuesday in reaction to Jerome Powell’s firmer tone.

The Dow Jones index fell 1.72%, or 574.98 points, to 32,856.46 points, the S&P-500 lost 62.05 points, or 1.53%, to 3,986.37 points and the Nasdaq Composite fell 145.40 points (1.25%) to 11,530.33 points.

All the major sectors of the S&P-500 ended in the red, first and foremost the financial sector, which fell 2.5%.

Among the major moves on the stock side, Rivian Automotive fell 14.5% following the announcement of a bond issue of more than $1.3 billion to bolster its liquidity.

Tesla lost 3% as its boss, Elon Musk, told investors he had a plan to produce a downsized vehicle model at half the cost of producing the Model 3.

Futures on major indices suggest a stable open for now.

IN ASIA

The Nikkei index in Tokyo (+0.48%) rose to a new high since November, as the depreciation of the yen favored export-oriented stocks, which helps to dissipate the nervousness ahead of the monetary policy meeting in the Bank of Japan on Friday.

In China, the CSI 300 index fell 0.4% and the Shanghai SSE Composite 0.1%, affected by the prospect of high interest rates for a long time in the United States.

EXCHANGES/RATES

Against a basket of benchmark currencies, the dollar gained 0.14%, accentuating its rise the day before, still supported by the prospect of more marked monetary tightening in the United States.

The euro, at 1.0539 dollars, is at a two-month low.

Like the greenback, US government bond yields are trending higher, at more than 4% for the ten-year and 5.0511% for the two-year, which hit its highest level since June 2007.

The spread between these two rates widened to -108.12 basis points, its lowest level since August 1981. Such a reversal is seen as a harbinger of recession.

In Europe, the ten-year German Bund yield takes nearly two basis points to 2.716%.

OIL

Oil prices are relatively stable, the announcement by the American Petroleum Institute of an unexpected drop in crude stocks in the United States being offset by fears about demand with the monetary tightening of central banks.

Brent lost 0.08% to 83.22 dollars a barrel and US light crude (West Texas Intermediate, WTI) dropped 0.27% to 77.37 dollars.

(Written by Laetitia Volga, edited by Bertrand Boucey)

Copyright © 2023 Thomson Reuters