PARIS (Reuters) – European stock markets ended lower on Tuesday, as the reassessment of the Fed’s rate trajectory, massive debt issuances in the United States and the risks of a “shutdown” lifted bond yields Americans at their highest since 2007.
In Paris, the CAC 40 dropped 0.7% to 7,074.02 points, while the German Dax lost 0.97% and the British Footsie was stable.
The EuroStoxx 50 index ended the session down 0.97%, compared to 0.52% for the FTSEurofirst 300 and 0.59% for the Stoxx 600.
A combination of factors has caused US sovereign bonds to plunge since the Federal Reserve’s last meeting on September 20, with one of the world’s safest assets dragging risky assets down.
The Fed’s offensive speech, which insists that key rates will remain higher for longer and that the fight against inflation will take precedence over supporting activity, has triggered massive bond sales, with the ten-year yield taking 20 basis points over the last four sessions.
“The upward revision of the Fed Funds rate after the next round of Fed easing is underway,” explain ING strategists, who underline the massive scale of this revision.
“Investors now consider that the low point of a possible Fed easing cycle will be around 4.00% in three years: the market saw the low point of Fed Funds in three years at 2.70% at the beginning of the year”.
Furthermore, $134 billion in Treasury bonds will be issued over the next three days, with maturities of two, five and seven years, while a “shutdown” could be triggered if Congress cannot agree on a budget for fiscal year 2024, which begins October 1.
Added to this is the risk, albeit slight, of a drop in the credit rating of the United States, the rating agency Moody’s having warned the American government that a “shutdown” would be a negative factor for the rating of American credit. The Fitch agency lowered the United States’ rating a month ago, citing an erosion of governance.
RATE
US long yields hit their highest since 2007 at European close, while European yields remain near their highest since 2011 as markets reassess monetary policy paths.
The ten-year Treasury yield remains at 4.5417%, its record for 16 years, while the two-year rate gains 1 basis point to 5.1401%, close to its record since 2006.
The yield on the German ten-year rose 1 basis point to 2.798%, at its highest closing price since 2011, while that of the two-year rate ended stable at 3.218%.
VALUES
Airbus announced on Tuesday the appointment of its commercial director, Christian Scherer, as general manager of its commercial aircraft activity, which brought the title to the top of the CAC 40, up 0.50%.
Dutch semiconductor equipment maker ASM International raised its 2025 revenue target on Tuesday, banking on its transition to new microchip technologies, but lost 1.63% as analysts judged the increase careful.
Sectors sensitive to rates fell, with real estate losing 1.94% compared to 2.01% for the new technologies compartment, the worst sectoral performance of the Stoxx 600.
Concerns about the Chinese economy weighed on luxury, which lost 1.78% with a decline of 1.44% for LVMH, 2.18% for Kering, among the worst performances of the CAC 40, and 3.02% for Richemont.
British electronics retailer RS Group gained 5.49%, topping the Stoxx 600, after website Betaville reported interest from a private equity buyer and US-based sector rival -United for redemption.
A WALL STREET
Wall Street retreats at closing time in Europe, with the Fed’s restrictive bias and the risk of a “shutdown” limiting risk appetite.
At closing time in Europe, trading on the New York Stock Exchange indicated a drop of 0.95% for the Dow Jones, compared to 1.20% for the Standard & Poor’s 500 and 1.19% for the Nasdaq. Composite.
CHANGES
The dollar is hitting a 10-month high, benefiting from its status as a safe haven asset and expectations of higher key rates for longer.
The dollar rose by 0.11% against a basket of reference currencies, while the euro was stable at $1.0566. The pound sterling fell 0.43% to $1.2159.
OIL
Crude rose moderately during a turbulent session, with markets seeking to balance the risks of a slowdown in demand and a reduction in the supply of crude and refined products.
Brent nibbles 0.6% to $93.85 per barrel, American light crude (West Texas Intermediate, WTI) advancing 0.86% to $90.45.
(Written by Corentin Chappron, edited by Kate Entringer)
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