Stock Markets Tumble as Central Banks Hint at Prolonged Higher Rates and Tight Bond Rates

2023-09-26 21:10:58

Paris (awp/afp) – Western stock markets ended in the red on Tuesday, harmed by particularly tight bond rates since the announcements of the American central bank last week, determined to maintain its high rates for longer than anticipated by the markets .

In Europe, Paris closed down 0.70%, Frankfurt 0.97%, Milan 1%. London held up better and finished stable (+0.02%). In Zurich, the SMI fell 0.555.

On Wall Street, the Dow Jones lost 1.14%, the Nasdaq index lost 1.57% and the broader S&P 500 index lost 1.47%.

“The market is giving us a monetary policy anxiety attack today,” quips Florian Ielpo, in charge of macroeconomics at Lombard Odier IM.

“All central banks have signaled the start of the end-of-cycle phase [de hausses des taux] last week” and it is now “a plane flight whose duration we do not know”, continues the economist.

The most influential of them, the American Federal Reserve (Fed), announced last Wednesday that it would maintain its rates in the range of 5.25-5.50%, while anticipating an additional increase by the end of the year, as well as rates slightly above 5.0% in 2024, a higher level than expected.

These announcements notably raised concerns about “financing costs for businesses”, in the wake of the rise in real rates, which are “the current long-term rates from which the level of inflation is subtracted”, explains Florian Ielpo .

For example, real rates in Germany “exceeded 0.3% two days ago, while two years ago they were at -2%,” he adds.

Read more:  US stocks rise on positive inflation data

However, when the “cost of financing increases, we invest less and less, we have less and less prospect of growth and another dynamic takes place, the dynamic of recession”, explains Florian Ielpo. .

In this context, investors then take less risks on the stock markets, especially as records accumulate on the bond market. On Tuesday, the yield on 10-year US government bonds reached a new high, at 4.56%, a first since October 2007; that of the 30-year maturity rose to 4.69%, a record since 2011.

In Europe, the interest rate on the ten-year German government bond reached 2.82%, also the highest since 2011, and stood at 2.81% around 9:00 p.m. GMT.

Real estate at the cellar ___

German real estate giants Vonovia (-5.18%), LEG Immobilien (-5.48%) and TAG Immobilien (-7.84%) have been neglected as interest rates once again weigh heavily on the area.

Amazon attacked ___

On the market, Amazon (-4.03%) suffered from the announcement of legal action brought by the American Competition Authority, the FTC, against the group from Seattle (Washington State) for abuse of dominant position on its online commerce platform.

Prosecutors from some 17 states have joined the proceedings, which accuse Amazon of taking advantage of their hegemony to impose anti-competitive conditions on merchants who use the platform.

Coty sanctioned ___

The cosmetics group Coty (-1.78%) paid, for its part, the announcement on Monday of the issue of 33 million new shares, in conjunction with its upcoming listing on the Paris Stock Exchange.

This dual listing (with New York) should allow Coty to diversify its shareholder base. The proceeds from the capital increase will be dedicated to repaying its debt.

Read more:  Share up 600 percent

Oil on the rise ___

Oil prices started to rise again on Tuesday, still confined within tight margins around what seems to be a new balance, between constrained supply and uncertain demand.

The price of a barrel of Brent from the North Sea for delivery in November gained 0.71%, to close at $93.96.

Its American equivalent, the West Texas Intermediate (WTI) of the same maturity, gained 0.79%, to $90.39.

On Tuesday, the greenback was at its highest levels since March against the single currency, at 1.0570 dollars per euro.

Bitcoin fell 0.57% to $26,144.


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