Market: Europe ends in the red, fears of recession take over

by Laetitia Volga

PARIS (Reuters) – European stock markets closed lower on Thursday after, paradoxically, strong U.S. economic indicators fueled worries about Federal Reserve (Fed) monetary policy and fears it could trigger a recession.

In Paris, the CAC 40 lost 0.95% to 6,517.97 points. The British Footsie fell 0.37% and the German Dax 1.3%.

The EuroStoxx 50 index fell by 1.26%, the FTSEurofirst 300 by 0.97% and the Stoxx 600 by 0.97%.

Indices extended their losses during the session, especially after the announcement of stronger growth in the US economy than previously announced in the third quarter, at 3.2% at an annual rate, thanks to the increase in consumer spending and especially business investment.

Investors also noted the smaller-than-expected rise in jobless claims last week in the US.

While such statistics would normally be appreciated, in the current context of monetary policy tightening by central banks, they raise fears that the Fed will raise the federal funds rate target to a higher level than expected and for a longer period of time, with an increased risk of recession.

At the close in Europe, the three major New York indexes lost 1.4% to 2.6%.

The S&P-500, the benchmark index for investors, is currently down about 20% annually, its worst performance since the 2008 financial crisis.

“The light at the end of the tunnel will make 2023 better for stocks than for the economy,” says Keith Buchanan, portfolio manager at GLOBALT Investments. “This is the best telegraphed recession ever.”

VALUES

The majority of the European sectors closed in the red, such as technology, weighed down by the bad forecasts from the American Micron (-4.70%) or cars, which each fell by 2.53%.

In Paris, Stellantis (-3.22%), STMicroelectronics (-3.47%) and Renault (-3.72%) recorded their biggest declines.

Orpea sold 5.26% after raising the expected value of impairments to 5.0-5.4 billion euros before tax for the 2022 financial year, from 2.1 and 2.5 billion euros previously.

CHANGES

The dollar index, which measures the swing of the greenback against a basket of benchmark currencies, rose 0.27% driven by the day’s US indicators. The euro gave up some ground, falling below $1.06.

RATE

After a three-week peak above 3.7%, the yield on 10-year US Treasuries fell slightly to 3.6693%.

In Europe, the 10-year German in session hit a two-month high of 2.381%, extending the trend that started last week with the more hawkish announcements from the European Central Bank. However, Erik Nelson, an analyst at Wells Fargo, advises not to put too much weight on today’s moves given the low volumes with the Christmas holiday.

OIL

The oil market is steady after hitting its highest level in two-and-a-half weeks in response to falling U.S. crude inventories as a winter storm batters much of the country.

Brent rose 0.01% to $82.21 a barrel and U.S. West Texas Intermediate (WTI) rose 0.19% to $78.44.

(Laetitia Volga, edited by)

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