by Augustin Turpin

(Reuters) – European stock markets ended lower on Monday, at the end of a volatile session, with bond yields rising again following cautious comments from Philip Lane, chief economist of the ECB, who estimated during the week -end that cutting rates too quickly could fuel a new wave of inflation.

In Paris, the CAC 40 ended down 0.71% at 7,412.32 points. The British Footsie lost 0.45% and the German Dax 0.44%.

The EuroStoxx 50 index lost 0.51%, the FTSEurofirst 300 0.48% and the Stoxx 600 0.53%.

After opening in positive territory, European stocks looked for direction during a session marked by the absence of investors on Wall Street, the New York Stock Exchange remaining closed for Martin Luther King Day.

Initial gains faded after about an hour of trading as the momentum from bets on a cut in U.S. interest rates ran out as investors digested Philip Lane’s comments, published Saturday in the Italian daily newspaper Il Corriere della Sera.

“A false dawn, a recalibration too quickly, can be self-defeating,” said Philip Lane, who believes that cutting rates too quickly could fuel a new wave of inflation.

According to the CME’s FedWatch tool, the market now estimates a 77% chance that the US central bank will start easing rates in March, compared to 68% a week ago.

“It’s interesting to see that one of the more ‘dovish’ members of the governing council is not too ‘dovish’,” Nordea analyst Anders Svendsen said of Philip Lane’s comments.

“The big picture will depend on the key figures to come and so far what we have had this year has not been enough to fundamentally change the situation,” added Anders Svendsen.

Other statements expected this week should also influence the trajectory of the markets, with Christine Lagarde, President of the ECB, notably due to speak at the World Economic Forum in Davos on Wednesday.

The publication of the final figures for German inflation for the month of December and that of the American “Empire State” indicator, expected on Tuesday, should also provide new indications on economic health in Europe and the United States.

VALUES

Dassault Aviation fell 6.16% after lower-than-expected aircraft deliveries. Deutsche Bank also lowered its recommendation on the stock.

Atos plunges 15.04% in reaction to the announcement of the reshuffle of its management team and the launch of a warning on its cash flow.

Commerzbank closed in the green (+0.8%) and Deutsche Bank (-0.9%) in the red as discussions on a merger between the two banks resurfaced, according to sources.

TODAY’S INDICATORS

Germany’s gross domestic product (GDP) fell by 0.3% for the whole of 2023 amid persistent inflation and weak demand from abroad.

Industrial production in the euro zone, for its part, contracted further in November, by 0.3%, with a marked drop in durable consumer goods.

CHANGES

The dollar was little changed on Monday, a holiday on American markets, while the pound sterling fell before a busy week of economic data in the United Kingdom.

The dollar advances (0.2%) against a basket of reference currencies, while the euro gains 0.01% to $1.095.

RATE

Eurozone bond yields rise in response to Philip Lane’s remarks.

The 10-year German Bund gained 5.5 basis points to 2.198%, while the two-year rate gained 7.4 bps to 2.589%.

OIL

Oil prices lost more than 1% on Monday, as the limited impact of the conflict in the Middle East on crude production led to profit-taking last week, after oil indices rose more than 2%.

Brent dropped 0.47% to $77.92 per barrel, with American light crude (West Texas Intermediate, WTI) losing 0.59% to $72.25.

“As the Middle East conflict is not currently affecting oil production, the geopolitical risk premium embedded in oil prices now appears modest based on options implied volatility,” the analysts said from Goldman Sachs in a note.

(Some data may have a slight lag)

(Written by Augustin Turpin, edited by Sophie Louet)

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