US inflation leads investors on the wrong foot

US inflation leads investors on the wrong foot


The German DAX index seen on the Frankfurt Stock Exchange

(Reuters) – European stocks closed sharply lower on Tuesday after news of an unexpected rise in U.S. consumer prices defied rate expectations and reignited fears of a recession, cooling markets. buoyed for several days by renewed optimism.

In Paris, the CAC 40, which rose almost 1% at the beginning of the afternoon, ended with a drop of 1.39% (87.9 points) to 6,245.69 points. In London, the FTSE 100 fell 1.09% and in Frankfurt, the Dax lost 1.59%.

The EuroStoxx 50 index fell 1.65%, the FTSEurofirst 300 1.37% and the Stoxx 600 1.55%.

At the time of the close in Europe, Wall Street, which remained in four consecutive sessions of rise, sank into the red, the Dow Jones lost 2.78%, the Standard & Poor’s 500 3.17% and the Nasdaq Composite 4.07%.

While the consensus expected them to fall slightly, US consumer prices rose 0.1% last month, with their annual rise slowing less than expected to 8.3%.

These numbers prompted investors to sharply revise higher expectations for US interest rate developments, as well as the risk that policy tightening would slow economic activity.

Eight days before the next decisions of the Federal Reserve, the estimated probability of a three-quarter point increase in the federal funds rate thus reaches 79% and that of an even greater increase, of 100 basis points, stands at 21% according to the real-time FedWatch Barometer.

However, a 75 basis point increase would be enough to push rates to a level that most observers see as likely to weigh on economic growth and raise unemployment.

August’s CPI reflects “a frustratingly slow slowdown in core price pressures,” Frederik Ducrozet, director of macroeconomic research, and Thomas Costerg, senior economist at Pictet Wealth Management, said in a note.

SPEED

The release of the US data sparked an immediate surge in US Treasury yields, which dipped slightly as the hours went by: the two-year, hovering around 3.51% at the beginning of the day, it rose to 3.7518% and the ten-year. year it went from less than 3.3% to more than 3.43%.

European yields followed suit: Germany’s 10-year bond ended the day up more than eight basis points at 1,727%.

They were already on the rise before the American ones, driven by the revision of inflation in Spain in August to 10.5% at one year and by the impact of the day’s auctions in the euro zone, for a total amount of more than 20 billion euros.

CHANGES

The dollar also made the most of the US CPI figures: while it was still losing ground before release, it is now up 1.13% against a benchmark basket.

The euro fell close to parity with the dollar against nearly $1.02 at the day’s high.

VALUES

In Europe, none of the major sectors of the rating escaped the general decline and among the most pronounced declines, real estate lost 3.86%, high technology 3.21% and construction 2.49%.

The distribution compartment lost 3.46%, as British stocks suffered from the latest figures from Kantar on sales for the sector, in which several analysts saw confirmation of a slowdown in consumption: Tesco fell 3.08% and Sainsbury’s 1.59%.

Ocado, which fell 14.59%, also suffered the downward revision of the forecasts for its joint venture with Marks & Spencer (-3.79%).

Upward, UBS gained 0.68% after announcing a dividend hike and mentioning a possible breach of its share buyback target.

OIL

The oil market is not immune to the general decline in market sentiment caused by US inflation, especially as this comes on top of lingering uncertainties about health restrictions in China.

Brent fell 1.78% to $92.33 a barrel and US light crude (West Texas Intermediate, WTI) fell 1.52% to $86.45.

(Written by Marc Angrand)

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