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European Stock Exchanges | Session in bright red after statements by central banks

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(Paris) European stock markets had their worst session in six months on Thursday, taking fright after the much more aggressive tone than expected from the European Central Bank while the degraded economic outlook tormented Wall Street.

The places in the euro zone suffered the blow: Paris lost 3.09%, Frankfurt 3.28% and Milan 3.45%, their worst fall for at least six months. London fell more modestly (-0.95%), with the more accommodating tone of the Bank of England.

In the aftermath of the US Federal Reserve, which had already rocked Wall Street, US markets lost even more ground following poor economic indicators: the Dow Jones fell 2.48%, the S&P 500 2.64% and the NASDAQ by 3.06%.

Last of a long series, the European Central Bank hardly innovated compared to the other central banks: it increased its key rates but in a more modest way than during its previous meetings (0.5 percentage points).

If the markets panicked, it was mainly by observing that the institution had revised “enormously upwards” its inflation projections for the next few years. As a result, higher and more regular rate increases are expected in the coming months, notes Nicolas Leprince, manager of Edmond de Rothschild AM.

The fall in equities has been accompanied by a surge in the cost of credit for governments. The interest on the Italian 10-year debt rose to 4.13%, against 3.85% the day before. The gap widened significantly with the German 10-year debt rate, the benchmark in Europe, which reached 2.07%.

Conversely, the cost of borrowing for the United States fell slightly to 3.44%, a sign of fears of the arrival of a recession for the world’s largest economy.

The economic indicators of the day were indeed very poor, the day after the Fed’s warning about the robustness of the American economy: retail sales fell more than expected in November, while industrial production in November, as measured by the Fed, slowed by 0.2%, weighed down by manufacturing activity.

On Wednesday, the US Federal Reserve set the tone. It admittedly reduced the pace of its monetary tightening as expected, but indicated that it now expected its main key rate to exceed 5% next year, a higher level than previously indicated.

On Thursday, the central banks of Switzerland and Norway also delivered a similar message, while the Bank of England appeared more divided.

In Asia, the stock markets also took a hit after the drop in retail sales in China in November, which was more severe than expected (-5.9% over one year). This contributed to the rout of luxury stocks in Europe, including Kering -5.76% or Hermès (-5.10%) in Paris.

Technology bends under the rates

The big names in the technology sector, very sensitive to rate increases, blamed the blow like Meta (Facebook) which lost 4.50%, Microsoft (-3.20%) or Netflix (-7.36%). The depression in retail sales also affected Amazon, the number of online distribution (-4.01%).

In Europe, semiconductor maker STMicroelectronics fell 4.88% and German software specialist SAP 4.32%.

Euro hits six-month high

The euro and the dollar emerged strengthened and the pound weakened on Thursday from a series of central bank meetings.

The ECB and the Fed opted for a determined message on their desire to continue raising rates, where the BoE was more cautious.

The euro fell 0.47% against the greenback, at 1.0633 dollars, but gained 1.27% against the pound at 87.07 pence around 11:45 a.m. (Eastern time).

Oil fell sharply after its strong gains since the start of the week: the barrel of American WTI yielded 2.23% to 75.56 dollars and the barrel of Brent from the North Sea by 1.86% to 81.13 dollars around 12:45 p.m. (Eastern time).



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