The Fed fuels fears of recession, Tokyo to the rescue of the yen – 09/22/2022 at 13:13

File photo of the Wall Street sign outside the New York Stock Exchange in Manhattan.

File photo of the Wall Street sign outside the New York Stock Exchange in Manhattan.

PARIS (Reuters) – Wall Street is expected to rise slightly on Thursday after tumbling the day before on the Federal Reserve’s announcements, while European shares fell, penalized both by the almost general tightening of monetary policies and by the renewed geopolitical tension.

The foreign exchange market is buoyed by the intervention of the Japanese authorities in support of the yen, for the first time since 1998.

The futures of the main New York indices point to an opening of 0.18% for the Dow Jones, 0.23% for the Standard & Poor’s 500 and 0.19% for the Nasdaq.

In Paris, the CAC 40 fell 0.64% to 5,992.63 points by 10:35 GMT. In London, the FTSE 100 lost 0.28% and in Frankfurt, the Dax fell 0.5%.

The EuroStoxx 50 index fell 0.5%, the FTSEurofirst 300 0.75% and the Stoxx 600 0.73%.

The three main US indices lost more than 1.7% this Wednesday after the Fed’s announcement of a new rate hike and the statements of its president, Jerome Powell, who predict continued monetary tightening and a marked slowdown in the economy. , inevitable according to him to curb inflation. even if he refrained from uttering the word “recession.”

“We fully agree that a brutal remedy is needed to restore price stability. But we fear its side effects will be more severe than the Fed currently anticipates,” Christian Scherrmann, US economist at DWS, said on Thursday.

In Europe, the Swiss National Bank (SNB) also raised its reference rate by three-quarters of a point, thus breaking with negative rates, and Norges Bank, the Norwegian central bank, opted for a half-point increase, leaving the door open for tighten more.

The Bank of England is expected to announce a further rate hike of at least 50 basis points at 11:00 GMT.

This synchronized movement further isolates the Bank of Japan, which has opted to maintain its ultra-accommodative monetary policy, thus widening the rate differential with the rest of the large developed economies. A discrepancy that led the Japanese authorities to intervene directly in the foreign exchange market.

CHANGES

The yen immediately took advantage of this intervention: when it approached 146 per dollar at the beginning of the day, the lowest in 24 years, it rose to around 143.

But it’s still down more than 23% from the start and its recovery may be short-lived. “As long as the Fed maintains its strong stance on raising rates, any intervention in the yen should slow the yen’s decline without stopping it,” said Ben Laidler, market strategist at eToro in London.

The euro, for its part, recovered some ground at 0.9879 dollars (+0.43%) after the 20-year low reached on Wednesday at 0.9807.

As for the British pound, it gained 0.65% against the dollar, but remained close to its 37-year low (at 1.1213) pending BoE decisions.

SPEED

The UK two-year yield, the most sensitive to expectations of changes in benchmark rates, rose more than seven basis points to 3.452%, but the ten-year yield fell to 3.29%.

This development, reflecting fears that higher rates will weigh on growth, is reflected in the euro zone: the German two-year bond reached a new 11-year high at 1.897%, while the ten-year bond it returned to 1.853%.

In the American market, the two-year, driven by the upward revision of key rate expectations, continues to shoot up to 4.0966% but the ten-year, which had fallen on Wednesday, rose to 3.534%.

VALUES IN EUROPE

On the equity side in Europe, the multiple rate hikes continue to weigh on technology stocks, whose Stoxx index fell 1.82%.

The transport and leisure compartment (-1.76%), suffered from Accor’s 7.43% drop after JPMorgan’s downgrade to “underweight”.

On the upside, the banking compartment (+1.49%) benefits from the prospect of improvement in its credit spreads.

The Spanish Sabadell also takes 4.92%. Multiple sources told Reuters the group had received non-binding offers from Worldline (+1.17%), Nexi and Fiserv for its payments division.

OIL

The oil market is benefiting from signs of a rebound in Chinese demand and the geopolitical backdrop, but it only erases a small part of the losses suffered on Wednesday in reaction to the Fed’s speech.

Brent gained 0.42% to $90.21 a barrel and US light crude (West Texas Intermediate, WTI) 0.55% to $83.40.

They had yielded respectively 0.87% and 1.78% the previous day.

(Report XXX, French version Marc Angrand)

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