by Claude Chendjou
PARIS (Reuters) – The main European stock markets are expected to fall on Thursday in the wake of Wall Street, investors having negatively interpreted the announcements of the American Federal Reserve (Fed) the day before, seeing it as a sign that interest rates will remain high for a long time in the United States while several other major central banks must publish their monetary policy decisions during the day.
According to the first available indications, the Parisian CAC 40 should lose 0.91% at the opening, the Dax in Frankfurt 0.97% and the FTSE 100 in London 0.94%. The EuroStoxx 50 index is expected to decline by 1.09%.
The Fed, as expected, maintained the fed funds rate target on Wednesday at 5.25%-5.50%, the highest level in 16 years, citing still high inflation. Its president, Jerome Powell, then warned that the bank’s monetary policy could remain at a restrictive level for longer than expected.
The Fed’s economic projections also showed that the American central bank was counting on a further rate increase of 25 basis points by the end of 2023.
“Investors choose what they want to focus on, which is obviously the most negative, so I think today (market) sentiment will lean more towards the red,” said Ben Luk, multi-strategist. active at State Street Global Markets.
Ben Luk highlights two surprises in the Fed’s announcements: the increase in forecasts for 2024 and the prospect of economic growth in the United States which would remain solid despite the high level of interest rates.
The Bank of England (BoE) must in turn publish its monetary policy statement at 11:00 GMT and investors estimate the probability of a status quo on its rates at 50% after 14 increases in a row since December 2021, which have raised its main key rate to 5.25%.
If the prospect of a pause in the rise in rates in Great Britain, reinforced by the surprise slowdown in inflation in August (+6.7% over one year), is reassuring, the market continues to question the bank terminal rate.
Before the BoE, the market will have become aware of the decisions of the Norwegian central bank at 06:00 GMT, then at 07:30 GMT those of Switzerland and Sweden.
A WALL STREET
The New York Stock Exchange ended down after the Fed’s announcements which showed a certain caution on the evolution of inflation.
The Dow Jones index fell 0.22%, or 76.85 points, to 34,440.88 points.
The broader S&P-500 lost 41.75 points, or 0.94%, to 4,402.20 points.
The Nasdaq Composite fell 209.06 points (-1.53%) to 13,469.13 points.
Among the major S&P-500 sectors, interest-rate-sensitive communications services and technology saw the largest declines.
On the value side, Klaviyo rose 9.2% for its IPO, the third IPO in New York in recent days after Arm and Maplebear, which both ended down.
IN ASIA
On the Tokyo Stock Exchange, the Nikkei index fell 1.3% to 32,593.25 points and the broader Topix fell 0.86% to 2,385.37 points as the close approached.
The MSCI index bringing together stocks from Asia and the Pacific (excluding Japan) fell by 0.6%.
In China, the Shanghai SSE Composite lost 0.58% and the CSI 300 lost 0.62%.
CHANGES
The dollar strengthens (+0.09%) against a basket of reference currencies following the Fed’s announcements.
Against the Japanese currency, the greenback hit a new peak since November at 148.47 yen per dollar, while the Bank of Japan (BoJ) in turn begins a two-day monetary policy meeting without any notable change of course foreseen.
The euro is trading at 1.0636 dollars (-0.22%).
The pound sterling stands at 1.23205 dollars (-0.19%) before the BoE decisions.
RATE
The yield on 10-year US Treasury bonds jumped nearly nine basis points to 4.4313%, and the two-year yield jumped 6.5 points, to 5.1824%, to a 17-year high.
Futures forecast that Fed rates will remain above 5% until at least September 2024.
“For now, the message is that we are going to leave rates higher for longer to be sure to kill the dragon of inflation. This means fewer rate cuts in 2024,” underlines Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy.
OIL
The strength of the dollar and the prospect of interest rates at high levels over a long period are weighing on the oil market: Brent fell by 0.69% to 92.88 dollars per barrel and American light crude (West Texas Intermediate , WTI) by 0.74% to $89.00.
(Written by Claude Chendjou, edited by Bertrand Boucey)
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