Investor dumps shares | The time
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Investor dumps shares | The time

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June 16, 2022

18:26

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A day after the largest rate hike by the US central bank (Fed) in three decades, the stock markets are firmly in the red.

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The European stock exchanges

thundered an average of 3 percent lower. That while Wall Street still managed to close positively on Wednesday evening after the Fed’s interest rate decision.

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The optimism of Wednesday evening was completely gone by Thursday. US stocks opened sharply lower. The industry gauge Dow Jones

around 6 p.m. is 2.5 percent lower and the tech barometer Nasdaq

loses -4.1%.

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In Europe, we saw a sell-off in the equity markets. First, there were also solid sales in the bond markets. Ten-year German government bond yields rose by 18 basis points in the afternoon, but eventually weakened. In the evening, the German 10-year yield climbed by 7 basis points to 1.70 percent. The Belgian ten-year yield initially climbed by 14 basis points, but eventually rose only 4 basis points to 2.34 percent. In Italy, interest rates eventually fell by 7 basis points to 3.73 percent. Note that the spread – the interest rate differential – of Italy and Belgium relative to Germany narrowed.

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In general, we see a decline in spreads in the eurozone. On Wednesday afternoon, the European Central Bank (ECB) sent out a statement that it will flexibly reinvest bonds maturing under the PEPP programme† In other words: it can, for example, buy relatively more Italian government bonds in order to limit the interest rate differential. The ECB is also working on a more structural solution to keep spreads in check. The fact that we are now seeing falling spreads indicates that the market believes the monetary authority will intervene.

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Tech and industry in the ramsj

On the European stock exchanges, we saw that technology stocks in particular suffered strongly. The chip machine manufacturers ASML

en ASMI

lost 7 and 8.7 percent respectively and Besi

thundered even 11.5 percent lower. The chip maker Infineon

lost 6.3 percent and so did the tech holding Prosus

had to give up 5.5 percent.

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The rise in German and US long-term interest rates is negatively impacting tech stocks. This is because an important part of the profits lies in the future because these companies grow relatively faster. A higher interest rate lowers the present value of those future profits, causing the valuation to fall.

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From Bel20

fell 2.8 percent. Here were the industrial stocks Umicore

Solvay

en Aperam

the biggest losers. That points to recession fears.

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