PARIS (Reuters) – European markets ended lower on Monday, with global stocks falling on weak U.S. economic data and a rate hike by the Bank of Japan.

In Paris, the CAC 40 lost 1.42% to 7,148.99 points, while the German Dax fell by 1.95% and the British Footsie by 2.04%.

The EuroStoxx 50 index ended the session down 1.59%, compared to 2.15% for the FTSEurofirst 300 and 2.22% for the Stoxx 600.

Markets ended sharply lower for the third consecutive session as poor US economic data triggered a broad movement of risk aversion.

In fact, new job creations were much weaker than expected in July, which operators interpreted as an indicator of an impending recession.

“Recession fears in the US are back as a dominant theme, fuelled by a rapid loss of momentum in the labour market and financial results pointing to weak consumer demand,” summarises Michael Langham, economist at abrdn.

“Market prices now indicate a conviction that the Fed is overdue and will cut rates quickly at upcoming meetings to avoid a hard landing.”

On Monday, the ISM services indicator was nevertheless better than investors expected, with the employment component showing a sharp rebound from June. Dovish statements by Chicago Fed President Austan Goolsbee, who dismissed the prospect of a recession, also limited the bond rally on the session as well as losses on stocks.

The pressure on stocks should nevertheless continue, because the fall in risky assets is also due to the unwinding of carry trades permitted by a weak yen.

Investors borrowing in yen were buying higher-yielding dollar assets, taking advantage of both low funding rates in Japan and high U.S. yields, enabled by the Fed’s restrictive rates.

The rate hike decided last week by the Bank of Japan called into question the logic of the operation and forced investors to exit their positions, putting pressure on the indices.

RATE

Yields ended a volatile session with little direction as investors saw recent U.S. activity figures push back the prospect of a recession.

At the close of the rate markets in Europe, the yield on the ten-year Treasury ended stable at 3.794%, against a rise of 1.1 bp for the two-year rate, at 3.8832%.

The yield on the German ten-year rose 2.3bp to 2.183%, while that of the two-year rate remained stable at 2.336%.

A WALL STREET

Wall Street fell mid-session in the wake of global indices.

At the time of the European closing, trading on the New York Stock Exchange indicated a drop of 2.08% for the Dow Jones, against 2.2% for the Standard & Poor’s 500, and 2.61% for the Nasdaq Composite.

VALUES

The banking sector fell by 2.34% on fears of recession. Société Générale, which announced on Monday the sale of several of its subsidiaries, nevertheless fell by 0.8%.

L’Oréal announced on Monday the acquisition of a 10% stake in Swiss pharmaceutical group Galderma, for an undisclosed sum. The French group recovered by 1.13%, the Swiss group by 2.36%.

Infineon rose 1.63% after announcing plans to cut more than 1,000 jobs and relocate others, and cutting its annual sales forecast.

Aurubis, Europe’s largest copper producer, reported a quarterly pre-tax profit on Monday that fell short of expectations and fell 11.04%.

CHANGES

The euro is strengthening against the dollar as traders bet on significant rate cuts from the Fed, which would narrow the gap between the eurozone and the United States.

The dollar lost 0.66% against a basket of benchmark currencies, while the euro gained 0.54% to $1.0967. The pound sterling declined 0.31% to $1.2758.

OIL

Crude oil is falling despite geopolitical tensions, with the latest indicators from the United States raising fears of a recession in the world’s largest economy.

Brent fell by 0.12% to $76.72 per barrel, while US light crude (West Texas Intermediate, WTI) fell by 0.2% to $73.37.

(Written by Corentin Chappron, edited by Kate Entringer)

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