[Article publié le vendredi 22.04.2002 à 9:36 mis à jour à 10:40, puis 14:00 avec Bourses mondiales (en pied d’article) mais avant Wall Street]
How to tighten monetary policy without plunging the economy into recession? The dilemma of fighting runaway inflation in the United States remains, but the Fed still hopes for a soft landing.
To stop the erosion of Americans’ purchasing power in the face of soaring prices, and to the great relief of investors worried about seeing their capital also eroded by record inflation of 7.9% in February (8.5% in March), the Fed had given the signal in mid-March for the release of free money by deciding to raise interest rates by a quarter of a percentage point (0.25%). These rates are now within a range of 0.25 to 0.50%.
Rates well below annual inflation, which could rise by 9% according to the Fed. But the Federal Reserve Chairman was crystal clear about the uncertainty around that forecast:
“Actually, we don’t know, so we’re not going to count on it. »
Faced with uncertainty, the Fed hints that it will strike hard
So, even if it hopes that this will be a peak followed by a fall, the American central bank is taking its precautions by hinting last night that it could, at the next meeting of its monetary committee, at the beginning of May, raise its key rates faster than it did in March, it indicated through the voice of its president, Jerome Powell.
A rate hike of half a percentage point “is on the table for the May meeting”he said during a conversation organized on the sidelines of IMF and World Bank meetings, where he expressed the institution’s doubts and its desire to improve the situation significantly, for “see real progress”:
“We expected inflation to peak around now and slow down over the rest of the year and then again in 2023. Those expectations have been disappointed in the past, and now we really want to see some real progress,” he explained.
He took the opportunity to emphasize another factor capable of putting the economy back on track by bringing down overheating, that of restoring order to supply chains, the disorder of which has continued to contaminate the economic activity for two years:
“We are also no longer going to rely on an improvement on the supply chain side”Mr. Powell added, although this “would be great” et “extremely useful to have a soft landing”that is to say to be able to fight against inflation without plunging the economy into recession.
Powell’s statement sends global stock markets crashing
The proactive statements of the head of the American central bank (Fed) on Friday threw a chill on stock markets around the world and pushed up bond rates.
After the Asian stock markets, the main European stock markets fell immediately at the start of the session on Friday, after the proactive statements of Jerome Powell, the president of the Federal Reserve, confirming the scenario of strong and repeated increases in US key rates.
Not surprising for Michael Hewson, an analyst at CMC Markets, interviewed by AFP, who recalls that “virtually all members” the Fed’s Monetary Committee have assumed a 50 basis point hike.
“The Fed Chairman again stressed the urgency of a quick rate hike and spooked many investors”also comments Andreas Lipkow, of Comdirect, who also points out to AFP that “the recent rise (in stocks) was driven by only a few companies”.
The decline was accentuated throughout the morning on the world financial markets.
In Paris, the CAC 40 lost 1.14% to 6,638.46 points around 07:50 GMT (then -1,49% around 11:20 GMT) and wipes out all of its Thursday gains. In London, the FTSE 100 yields 0.39% (-0,81% at 11:20 GMT) and, in Frankfurt, on DAX down 1.31% (-1,73% at 11:20 a.m. GMT). Milan decreased by -1,61% late morning).
The EuroStoxx 50 index is down 1.37%, the FTSEurofirst 300 1.06% and the Stoxx 600 0.99%.
In Asia, the Hong Kong Stock Exchange yielded 0.35%, that of Shanghai gleaned 0.23%, and Tokyo closed at -1.63%.
It should be noted that Chinese markets were also affected by concerns about the health situation in the country, particularly in Shanghai where millions of inhabitants are still confined, despite a slight easing of restrictions on Wednesday.
After a notable higher open on Thursday, Wall Street indices turned around after Jerome Powell’s announcement and fell by -1% for the Dow Jones to -2% for the Nasdaq.
The markets are therefore reacting very vigorously to this option of a 50 basis point increase in the federal funds (“fed funds”) rate target, which Jerome Powell says is on the agenda for the next monetary policy meeting (May 3 and 4).
The scenario of a series of increases by the end of the summer
For investors, the Fed has just implicitly validated their preferred scenario of a series of increases of half a percentage point in the months to come.
After these comments, Nomura analysts announced that they expect on increases of 75 basis points in June and then in July, which would be the fastest rise observed since 1994.
Similar development seen by Michael Hewson (CMC Markets, quoted above) for whom the markets fear “that the Fed go no further and longer, that is to say that it proceeds with two more hikes of 50 basis points by the end of the summer”.
This outlook is also influencing rate expectations in Europe: money markets are now pricing in an 80 basis point rate hike from the European Central Bank (ECB) by the end of the year.
Eurozone government bond yields also amplified their rise after the publication of the first results of the S&P Global PMI surveys, which suggest that the growth of private sector activity in France is at its highest for more of four years.
On Thursday, after Powell’s announcement, in the US bond market, the yield on US 10-year government bonds rose to 2.95% on Thursday, not far from its three-and-a-half-year high hit on Wednesday. (2.97%). That of the German sovereign bond jumped nine basis points on Thursday, standing at 0.943%. But on Friday at the start of European trading, they were stable.
Tech, luxury and distribution in the red
In this context, all the major sectors of the European stock market are evolving in the red, the most marked declines being for high technologies (-2,22%) and distribution (-2,12%).
Biggest drop on the Paris Stock Exchange, that of the Kering share which fell by 6.36% Friday morning on the Paris Stock Exchange, after the publication of the turnover of the luxury group which reveals disappointing sales for Gucci, according to investors. The health situation in China has had an impact in particular.
In the wake of Kering, the entire luxury sector fell: LVMH lost 2.10%, Hermès 2.95%, Burberry 2.84%, Moncler 3.69%, Salvatore Ferragamo 2.57% and even Richemont, which yielded 3.36%.
Renault, which rose at the opening, fell to -1,57% around 11:30 a.m., after the 17.1% drop in sales in volume over the first three months of the year, the lowest since 2009.
Casino, gained 1.37% at the opening, the market welcoming the return to sales growth in January-March, thanks among other things to Brazil, its second market. But the price started to fall again in the morning (at -0,25% around 11 a.m., Paris time).
The leading European publisher of SAP software (-3,22% to 96.20 euros) reported an 11% increase in the first quarter of its turnover, to 7.1 billion euros. The end of activities in Russia should weigh up to 300 million euros on sales this year, the company said.
On the side of oil and bitcoin
Around 0730 GMT, a barrel of Brent from the North Sea for delivery in June fell 0.78% to 107.46 dollars.
The barrel of American West Texas Intermediate (WTI) for delivery the same month lost 0.67% to 103.10 dollars.
Bitcoin fell 0.60% to $40,390.
(with AFP and Archyde.com)