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CAC 40: Between inflation, political crisis in Italy and fears of recession, the Paris Stock Exchange is still losing ground



(BFM Bourse) – The Paris Stock Exchange fell 1.4% but managed to narrowly save 5,900 points on Thursday evening. However, the morale of operators is undermined by recalcitrant inflation, the risks of an economic slowdown and a disappointing start to the earnings season in the United States. Oil prices are at their lowest since the invasion in Ukraine due to the same fears of recession in countries consuming black gold. On the foreign exchange side, the euro-dollar once again fell below parity.

This holiday was not easy for the Paris Stock Exchange. It’s hard to be optimistic as the dark clouds are piling up in the stock market sky. The atmosphere on the financial markets is likely to remain gloomy this summer, the latest economic data appear to be deteriorating while the central banks have given themselves the task of defeating the monster of inflation whatever the cost, even a recession.

The Paris Stock Exchange has accentuated its decline – until losing more than 2% to 5,874.68 points – in the wake of the decline in the indices on Wall Street before recovering at the end of the session. The CAC 40 ultimately lost 1.41% to 5,915.41 points in typical holiday volumes with just over 2.8 billion euros traded during the day. At the close of European stock markets, the Dow Jones returned 1.4%, the Nasdaq lost 1% while the S&P 500 fell 0.9% to head for a fifth session of decline in a row.

The results of JPMorgan and Morgan Stanley cast a chill, the two major US banks both missed analysts’ forecasts. Jamie Dimon, the boss of JP Morgan even warned that geopolitical tensions, high inflation and the loss of consumer confidence are likely “to have negative consequences for the global economy at some point”. The latest statistics published on the matter give reason for the moment to the expectations of the director general of the American bank. In the early afternoon, investors took note of the weekly unemployment figures revealing a further increase in registrations to 244,000 against 235,000 last week.

They mainly reacted to the rise in producer prices for June of 1.1% over one month, against a rise of 0.8% expected by the consensus. On an annual basis, the index rose by 11.3%, further illustrating the strength of the rise in prices across the Atlantic. This statistic is all the more watched as it sets the future tone for the direction of the Fed’s monetary policy. On Wednesday, the publication of an American CPI for the month of June, at the highest for more than 40 years, increases the pressure on the Federal Reserve of the United States to continue monetary tightening at a forced march. The situation as analyzed by the Bureau of Labor Statistics is indeed more worrying than expected since the difference from one month to the next comes out at +1.3%, i.e. an inflation rate over twelve months of 9 .1%, the highest rate since November 1981.

To regain control of inflation, the US Reserve will be forced to opt for a more aggressive posture in terms of monetary policy. Investors now believe that the Fed could decide on a 1% increase in its main key rate at the end of its monetary meeting on July 27, at the risk of plunging the American economy into a recession. The bets are off since the Canadian Central Bank did not procrastinate any longer to operate a turn of the screw in identical proportions on Wednesday.

A euro-dollar below parity and oil at its lowest since the invasion in Ukraine

These prospects for a rise in US key rates are benefiting the greenback, which is strengthening to levels not seen in decades against the yen or the euro. The euro thus plunged once again below parity to 0.9955 dollars (-1.04%), a level not seen since December 2002. In Italy, political risk is resurfacing while the 5-Star Movement refuses to support the vote of confidence requested by the government of Mario Draghi on a decree-law. The specter of political instability is spreading in the equity markets, the Milan Stock Exchange capitulating with a decline of more than 3.4% Thursday evening.

Still in the euro zone, the European Commission has just published its latest economic forecasts and the picture painted by the institution is far from encouraging for the months to come. It is downgrading its growth forecasts and revising its inflation forecasts for 2022 and 2023 upwards, mainly due to the impact of the war in Ukraine.

In this context of record inflation in the United States and the euro zone, oil prices fell by 5% before containing their losses to 2% with WTI at 94.14 dollars and Brent at 97.69 dollars per barrel. . Both global oil benchmarks fell back to similar levels at the start of Russia’s invasion of Ukraine, swept away by recession fears threatening demand for the black gold. Unsurprisingly, stocks affiliated with oil are in the wrong direction at the close, like the heavyweight of the CAC 40 TotalEnergies which yielded 4.7% Technip Energies for its part showed a drop of 5.8%, CGG of 5.4 % and Vallourec (-4.8%).

As for other values, a few companies have already communicated their results, particularly for small caps, such as TFF Group, which rose by more than 3% after reporting a sharp acceleration in its net income for its staggered 2021-2022 fiscal year.

Manutan (+1.4%) saw its activity increase by 15% in its third quarter of its staggered 2021-2022 financial year.

Arkema fell by 3.4%, under the influence of a degradation of UBS which goes from “neutral” to “sell” on the file with a price target slashed to 82 euros.

Atos yielded 4.6%, S&P has just lowered its credit rating from “BBB-” to “BB”, with a “negative outlook”. In addition, the IT group has taken note of the resignation of its outgoing CEO Rodolphe Belmer.

Sabrina Sadgui – ©2022 BFM Bourse




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