by Laetitia Volga

PARIS (Reuters) – European stock markets fell midway through the session on Wednesday and Wall Street should rebound after being cooled the day before by the announcements of the Federal Reserve and those of the Secretary of State for the Treasury.

According to futures on the New York indices, Wall Street should recover from 0.17% to 0.88% the day after a decline of about 1.6%. In Paris, the CAC 40 lost 0.45% to 7,099.19 around 11:35 GMT. In Frankfurt, the Dax fell by 0.57% and in London, the FTSE by 0.88%.

The pan-European FTSEurofirst 300 index fell 0.7%, the Eurozone EuroStoxx 50 dropped 0.37% and the Stoxx 600 lost 0.73%.

Faced with recent tensions in financial markets, the Fed opted for a moderate rate hike on Wednesday and while the central bank hinted that the end of the hike cycle could be near, its chairman, Jerome Powell, underlined that the central scenario did not include a possible rate cut this year. He also said banking strains could trigger a tightening of credit conditions, with “significant” implications for the economy.

“The impression given by Powell has robbed the market of any hope of seeing interest rates fall later in the year,” said Stuart Cole, chief macroeconomist at Equiti Capital.

“It seems that the message central banks have given so far, that getting inflation back to target is their priority, remains the message they will deliver despite bank failures.”

The markets also reacted badly to statements by US Treasury Secretary Janet Yellen who ruled out an extension of the bank deposit guarantee beyond the current limit of $250,000, a possibility that had benefited stocks in the sector recently.

Investors will follow the monetary policy decision of the Bank of England (BoE) after those earlier of the Swiss central bank and Norway, which both raised their key rate.

VALUES IN EUROPE

The majority of sectors are in the red, starting with that of the banks whose Stoxx index lost 2.05%.

Citigroup lowered its recommendation on the sector, warning that the rapid pace of interest rate hikes would continue to weigh on economic activity and earnings.

“The fundamentals of the banking sector in Europe appear sound. But the current crisis of confidence could limit banks’ appetite for risk and reduce the flow of credit,” said its strategists.

In Paris, BNP Paribas lost 1.73% and Societe Generale 1.68%.

At the head of the CAC 40, Sanofi grants itself 5.29%, the pharmaceutical group having announced that Dupixent, developed with Regeneron, had reached all its evaluation criteria in a phase III trial on “smoker’s bronchitis”.

CHANGES

The dollar is stabilizing against a basket of six international currencies after having chained five sessions of decline and reached a seven-week low in the morning.

Fed funds rate futures are pricing in a roughly 50% chance of a quarter-point hike in the Fed’s target this year, as for Europe markets see tightening about half a point more.

This divergence benefits the euro, which rises to 1.087 dollars, a gain of 0.14%.

The Swiss franc rose slightly against the dollar after the SNB decided to raise its key rate by 50 basis points while the Norwegian krone rose to its highest level in three weeks after the Norges Bank raised its main rate to 3%.

RATES Benchmark bond yields are down on both sides of the Atlantic, to 3.4884% for the ten-year American and 2.275% for that of the German Bund with the same maturity.

OIL

After Jerome Powell’s warning about US credit conditions and the unexpected rise in US crude inventories last week – to a two-year high – the oil market is losing ground.

Brent lost 0.6% to 76.23 dollars a barrel and American light crude (West Texas Intermediate, WTI) 0.8% to 70.33 dollars.

(Laetitia Volga, edited by Blandine Hénault)

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