PARIS (Reuters) – European stock markets ended lower on Monday, under pressure from American bond yields at their highest since 2007 and after activity indicators in sharp decline in the euro zone.

In Paris, the CAC 40 dropped 0.94% to 7,068.16 points, while the German Dax lost 0.91% and the British Footsie 1.28%.

The EuroStoxx 50 index ended the session down 0.89%, compared to 0.99% for the FTSEurofirst 300 and 1.03% for the Stoxx 600.

American yields resumed their rise on Monday after having hesitated during the two previous sessions, the markets then worrying about a risk of a “shutdown” of the American government.

This risk was averted on Sunday, and yields started to rise again, reflecting expectations of higher key rates for longer: the two-year rate, more sensitive to monetary policy, remains above 5%.

The increase in returns on these safe assets puts pressure on risky assets.

Furthermore, the PMI manufacturing indicators published on Monday confirmed the deterioration of activity in the euro zone and in Germany. The slowdown in ex-factory prices, while favorable to the disinflation dynamic, also illustrates the weakness of demand in the bloc.

The unemployment rate in the euro zone also remained at its historic low, according to revised figures published on Monday, bad news for the European Central Bank: the persistence of tensions on the job markets can be a source of inflation . Finally, the ISM manufacturing indicator surprised with its strength in the United States, and is approaching the threshold of expansion after eleven months of contraction, which encourages hopes of a soft landing in activity.

However, a more resilient American economy than expected could encourage the Federal Reserve to keep its rates in restrictive territory longer than expected to bring inflation under control.

RATE

US long yields continue to rise, supported by ISM activity data growing more quickly than expected, and which could reinforce the Fed’s restrictive monetary policy.

The ten-year Treasury yield jumped 9.7 bps to 4.6682%, a 16-year high, while the two-year rate gained 6.2 bps to 5.1083%, close to its record since 2006.

The German ten-year yield increased by 6.9 bps to 2.907%, while that of the two-year rate rose 1.8 bps to 3.224%.

VALUES

Edenred posted the biggest drop in the Stoxx 600, down 10.96% after Minister Olivia Grégoire raised on Monday the possibility of capping commissions charged to restaurateurs on restaurant vouchers. Sodexo lost 3.26%.

Casino lost 7.54% after the official transfer of 61 stores to Intermarché (Groupement les Mousquetaires), an operation intended to reduce the debt of the Saint-Etienne group.

Vivendi advanced 0.68%, the largest increase in the CAC 40, thanks to the increase in Barclays’ recommendation to “overweight”.

A WALL STREET

Wall Street is hesitant at closing time in Europe, under pressure from long yields at their highest in 16 years and after a rebounding ISM activity indicator.

At closing time in Europe, trading on the New York Stock Exchange indicated a drop of 0.6% for the Dow Jones, compared to 0.38% for the Standard & Poor’s 500 and an increase of 0.8%. for the Nasdaq Composite.

CHANGES

The dollar is at its highest level in a year, supported by the rising ISM manufacturing indicator, which gives hope for a near rebound in the sector in the United States.

The dollar rose 0.55% against a basket of reference currencies, while the euro lost 0.68% to 1.0498 dollars, its lowest in eleven months. The pound sterling fell 0.6% to $1.2124.

OIL

Crude declines in a volatile session as markets worry the latest ISM data could encourage the Federal Reserve’s restrictive bias.

Brent dropped 1.23% to $91.07 per barrel, with American light crude (West Texas Intermediate, WTI) falling 1.62% to $89.32.

(Written by Corentin Chappron, edited by Kate Entringer)

Copyright © 2023 Thomson Reuters