The Paris Bourse is rebounding and Wall Street is preparing to do the same after having stumbled under the pressure of bond yields. Investors welcome the first quarterly publications in Europe, particularly in the luxury sector with Burberry and Richemont, as well as the reassuring results of Morgan Stanley and Bank of America. However, the market is not losing sight of the evolution of the interest rate markets in reaction to the more aggressive turn taken by the American Federal Reserve.
Europe is not immune, the acceleration of inflation to 5.4% over one year in the United Kingdom, its highest level since 1992, fueling expectations of a tightening of the Bank of England. In Germany, the rise in consumer prices was confirmed at 5.7% and, while it marks a slowdown compared to November, it remains well above the target of the Bundesbank and, therefore, that of the ECB. The yield on the German 10-year bond, which serves as a benchmark in the euro zone, eased slightly to -0.0080% after a peak at 0.01%, its first passage into positive territory since May 2019.
At 2:45 p.m., le 40 gained 0.91% to 7,198.70 points in a relatively substantial business volume of 1.85 billion euros. In Frankfurt, the Dax takes 0.67% and in London, the Footsie goes up 0.55%. The contracts futures March on US indices gain between 0.3% and 0.7%. Bank of America rose 3% ahead of the market and Morgan Stanley 1.1%. The first published earnings per share of 83 cents, against 77 cents expected, driven by its personal credit and investment banking activities. The second exceeded the consensus of 10 cents per share, supported in particular by the solid income of its activities of advice after a quarter rich in mergers and acquisitions.
Interconnection with the United States
While economists do not anticipate an ECB rate hike before the end of the year, eurozone equity and debt markets are largely interconnected with the United States, where bond yields 10-year bond rose from 1.5% late last year to 1.85% as the market now expects four Fed rate hikes in 2022.
« The movement on German rates is an indirect effect of what is happening in the United States because these markets are interconnected “, explains Ewout van Schaik, of NN Investment Partners, quoted by the Financial Times. But he still expects rate swings to be larger in the US, adding that eurozone equities should outperform Wall Street this year for this reason.
Luxury regains luster
Hermes, Dry and LVMH gained between 2.9% and 3.7%, supported by Richemont’s 32% sales growth over the last three months of 2021, boosted by strong demand for its watches and jewelry in Europe and the United States. Burberry, for its part, expects a 35% increase in profits this year. In Zurich, Richemont advances by 6.5%, while Burberry wins 6% in London. Associated with the luxury sector, EssilorLuxottica rises 1.8%.
A l’inverse, M6 abandons 7% while an investment company belonging to the Frère family sold its entire stake in the television group at a unit price of 16.80 euros, i.e. a discount of 9.7% compared to the price of Tuesday closing. TF1, which plans to merge with M6, fell for its part by 7.8%.
Valneva fall of 14.3%. According to Reuters, the European Union’s medicines regulator said the biotech’s Covid vaccine was still under review, but was still awaiting additional data.
Note also the 1.8% increase in Safran, supported by a rating from Morgan Stanley changed from “underweight” to “line weight” on the title of the engine manufacturer. Conversely, JPMorgan downgraded EDF (-2.5%) by two notches to “underweight”, and reduced its target price from 14 to 7.60 euros. In addition, the faults detected or suspected on the safety circuits of the group’s five nuclear reactors in France constitute ” a serious event “, declared the president of the Nuclear Safety Authority (ASN), Bernard Doroszczuk, during a press conference.
A barrel of Brent crude from the North Sea remains above $88, the highest in seven years, following the interruption of a pipeline between Iraq and Turkey due to an explosion, and tensions in the Middle East. TotalEnergies appreciated by 1.2%.
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