CAC 40: Undermined by ECB speech, CAC 40 falls 3.1%, signs worst session since February

(BFM Bourse) – The Paris stock market ended sharply lower in response to central bank interest rate hikes and sharply deteriorating US indicators. The CAC 40 plunged 3.1% Thursday night, posting its strongest closing decline since February 23.

Central banks do not give gifts to the markets. The Paris stock market closed down sharply by 3.09%, back to a one-month low of 6,522.77 points. The star index in Paris thus shows its sharpest drop since February 23 at the close (-3.98% that day). This is the 5th biggest drop of the year for the star index in Paris.

While the European Central Bank (ECB) raised its key interest rates by 0.5 percentage points as expected by the market, it was the institution’s announcements that cooled the markets. Through its president, Christine Lagarde, the ECB indicated that the market’s expectations for future rate hikes from the central bank were not strong enough.

“The ECB predicts that inflation will only fall very slowly and that even in 2025 it will still be above the value that the ECB has targeted. Since the forecasts are always based on market expectations (and not on expectations from the ECB itself) regarding new interest rate measures, this does not mean that the ECB cannot convince the markets of its resolve. strong market reactions” Martin Moryson, Chief Economist Europe at DWS.

European markets were already in the red, but much less pronounced, already punished by the US central bank. The Fed raised interest rates by 50 basis points on Wednesday evening, a move that the market again expected. But its members have significantly revised their rate projections for 2023 and 2024. And Jerome Powell, its chairman, has been very adamant about the Fed’s desire to fight inflation.

Also, several US indicators released this afternoon were disappointing, particularly November retail sales and manufacturing activity in the Philadelphia region. The bottom line of statistics on today’s program therefore testifies to a deterioration in the health of the American economy. At the close of European stock markets, the Dow Jones fell 2.1%, the Nasdaq, which is highly sensitive to monetary policy, fell 2.9% on the New York Stock Exchange.

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Sabrina Sadgui – ©2022 BFM Bourse

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