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Recession fears in Europe and the United States weigh on the stock markets

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(Paris) Stock markets fell sharply on Wednesday, anticipating an economic recession in the United States, due to monetary tightening, but also in Europe if an embargo on Russian gas is pronounced.

European stock markets, which widened their losses throughout the day, closed sharply lower: Paris lost 2.21%, Frankfurt 1.89%, Milan 2.06%. The French and Italian markets even dropped 3% very briefly. London, for its part, lost 0.34%.

The New York Stock Exchange also fell: around 4:10 p.m. GMT, the Dow Jones yielded 0.60%, the S&P 500 1.16% and the NASDAQ, with strong technological coloring, 2.41%.

After tougher-than-expected comments from reputedly accommodating Federal Reserve Governor Lael Brainard on Tuesday, markets are pricing in even tougher-than-expected tightening from the US central bank.

Lael Brainard assured that the Fed was ready to “act more strongly” against inflation, in particular by selling financial assets, from its next monetary meeting in May.

This prospect of aggressive monetary tightening has Deutsche Bank analysts fearing an economic recession in the United States by the end of the year. “And they are not the only ones, many economists have this vision”, affirms Philippe Cohen, portfolio manager of Kiplink Finance.

The minutes of the last meeting of the institution’s monetary policy committee, expected after the close of European markets, will allow market players to find out more.

On the side of the European Central Bank (ECB), a member of the executive board warned Wednesday that a tightening of monetary policy in the euro zone could weigh down economic activity already weakened.

European operators are all the more worried about the current discussions between the countries of the European Union on new sanctions against Russia, concerning coal and investments in the country. The United Kingdom and the United States announced new economic and financial measures.

It is above all a stoppage of Russian gas and oil imports that worries the markets, “it would be unbearable for the economy”, according to Philippe Cohen.

But for Michael Hewson, “it is only a matter of time before the pressure becomes too strong” and that the countries still reluctant to this measure give in, especially if “new evidence of atrocities committed by the Russians arise. Russia is accused of abuses against civilian populations, particularly in the town of Boutcha, near Kyiv.

European Council President Charles Michel said on Wednesday that the EU should “sooner or later” impose sanctions on Russian oil and gas.

Rising rates and falling technologies

On the bond market, interest rates reacted to this whole context by climbing: that for the 10-year American loan stood at 2.599%, the highest since 2019. Those in Europe also tightened significantly, on the 10 German years amounting to 0.644%.

Technology stocks, which need low rates to finance their growth and for the valuation of their long-term profits, fell.

In New York, giants such as Meta (-2.65%) or Amazon (-2.92%) were all in the red. In Europe, Teleperformance (-4.53%), Darktrace (-1.55%) and HelloFresh (-9.46%) also suffered.

Even more exposed, semiconductor manufacturers suffered from international tensions and restrictive measures in China. Infineon fell 3.78%, STMicroelectronics 2.77%. Nvidia lost 6.12% and AMD 3.39%.

The ruble erases its losses

Oil prices fell sharply, after a significant and surprise rise in US crude inventories.

The barrel of WTI at maturity in May fell back below 100 dollars: losing 2.88% to 98.98 dollars. North Sea Brent, the European benchmark, for May delivery fell 2.20% to 104.29 dollars around 4 p.m. GMT.

In the currency market, the ruble temporarily returned to the level at which it closed on February 23 (81.16 rubles per dollar), before the Russian invasion of Ukraine. Around 4 p.m. GMT, it was trading at 82,1933 rubles to the dollar.

The euro remained weak (+0.07% to 1.0912 dollars), against the greenback, galvanized this week by the policy of the Fed.

Bitcoin fell 3.62% to $44,215.



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