European stocks set to pare losses for the week – 04/08/2022 at 07:50

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by Marc Angrand

PARIS (Reuters) – The main European stock markets are expected to rise on Friday after Wall Street’s positive closing and should thus reduce their losses for the week, dominated by the prospect of a rapid rise in US key rates.

Futures contracts on indices suggest an increase of 0.72% for the Dax in Frankfurt, 0.67% for the FTSE 100 in London and 0.86% for the EuroStoxx 50. As for the CAC 40 in Paris, it could take up to 0.7% according to the first indications available.

The Parisian market has lost 3.3% since the start of the week and this should end with its worst weekly performance for a month. The broad European Stoxx 600 index fell 0.72% in four sessions.

If the recovery of the American indices at the very end of the session Thursday is reassuring, investors are nonetheless concerned about the impact to come from the tightening of the monetary policy of the American Federal Reserve, the report of its last meeting having been the outstanding economic event of the week.

Two Fed officials, Charles Evans and Raphael Bostic, however, spoke more moderately on Thursday, the former evoking the need for a “measured” approach.

Markets are also beginning to position themselves for the Q1 earnings season: in the US, Standard & Poor’s 500 earnings are expected to rise 6.4% year-on-year according to Refinitiv data. IBES, after a jump of more than 30% over the last three months of 2021.

If the economic agenda of the day is practically empty, the markets remain attentive to information concerning the war in Ukraine, whether they concern the expected Russian offensive in the east of the country or the economic sanctions targeting Moscow.

AT WALL STREET

The New York Stock Exchange ended higher on Thursday, with gains from Pfizer (+4.3%), Microsoft (+0.6%) and Tesla (+1.2%) helping to rebound late in the session.

The Dow Jones index gained 0.25% to 34,583.57 points, the Standard & Poor’s 500 gained 0.43% to 4,500.21 and the Nasdaq Composite rose 0.06% to 13,897.30 points.

The S&P 500 had spent most of the session in the red, penalized by questions related to the conflict in Ukraine and the coming tightening of monetary policy by the Federal Reserve. Traders are now pricing a 50 basis point hike in the Fed’s key rate next month at 88.9%.

HP jumped 14.8% after the announcement of the entry into its capital of Berkshire Hathaway, the group led by Warren Buffett.

IN ASIA

On the Tokyo Stock Exchange, the Nikkei index gleans 0.15% less than an hour from the close, investors playing it safe for lack of momentum given by Wall Street, and it is heading for a drop of almost 3 % over the week.

Toyota lost 3.74% after reports from the Australian press evoking a heavy fine linked to defective particulate filters.

In China, the trend is hesitant, between the concern linked to the new wave of the COVID-19 epidemic and the hope of new economic stimulus measures, considered imminent by some analysts: the Shanghai SSE Composite and the CSI 300 are virtually unchanged.

EXCHANGES/RATES

The dollar continues to benefit from the prospect of a rapid rise in US interest rates and the index which measures its fluctuations against a basket of reference currencies, up 0.15% to 99.90, is approaching the 100 point threshold, which it has not crossed since May 2020.

The euro fell 0.17% to 1.0859 dollars, the lowest since March 8. The new package of EU sanctions against Russia has revived fears of a marked impact of the conflict on the economy of the 27. Moreover, some traders favor caution before the first round of the French presidential election.

On the government bond market, US Treasury bond yields remain on the rise but below their highs in recent days, at 2.6622% for the ten-year and 2.5074% for the two-year.

OIL

The price of a barrel fell and was heading towards a drop of around 3% over the week as a whole, dominated by the announcement of a recourse by the countries of the International Energy Agency (IEA) to their strategic reserves at height of 240 million barrels in total.

Brent fell 0.68% to $99.90 a barrel and US light crude (West Texas Intermediate, WTI) 0.47% to $95.58.

The decline linked to the decisions of the IEA, which will apply up to a million barrels per day from May to the end of the year, could limit the rise in prices in the short term but will not change the fundamentals of the market, nevertheless point out many analysts.

(Edited by Matthieu Protard)

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