(New York) Stock markets ended the week sharply lower on the back of tighter monetary policies and exacerbated fears of recession, which also rattled the oil, currency and interest rate markets.
Updated yesterday at 5:17 p.m.
The Paris Stock Exchange fell 2.28%, falling to its lowest closing level in a year and a half, while Frankfurt lost 1.97%, falling to a level not seen since November 2020. London fell 1, 97%, after government budget announcements that worry investors, and Milan dropped 3.36% before legislative elections.
On Wall Street, the Dow Jones set a new record low at the end of the year, down 1.62%. It had not finished a session this low since November 2020. As for the NASDAQ index, it lost 1.80%, while the broader S&P 500 index dropped 1.72%.
The research firm RichesFlores noted “the extreme nervousness of the markets today where (cumulated) soaring expectations of rate hikes and accentuation of the risks of recession”.
The price of a barrel of West Texas Intermediate (WTI), the American variety of benchmark oil, closed Friday below 80 dollars for the first time in more than 7 months, before the invasion of Ukraine.
Suffocated by fears of a global recession, WTI for November delivery, the benchmark contract, fell 5.68% in Friday’s session alone, to close at $78.74.
The barrel of Brent from the North Sea for delivery the same month fell 4.76% to 86.15 dollars, its lowest closing level for 8 months.
The dollar, considered a safe haven, reached a new 20-year high against the euro, at 0.9668 dollars for one euro, and approached its all-time high against the pound sterling, at 1, 0840 dollar for one pound.
“Pessimism is spreading across the euro zone” after the publication of flash PMI activity indices which show the first signs of recession, noted Craig Erlam, analyst at Oanda.
The decline in economic activity in the euro zone accelerated in September in the private sector, heightening fears of a recession fueled by soaring prices, according to the Flash PMI index.
These elements worry investors in a context of tightening monetary policy by central banks, which have not yet finished with rate hikes, the objective of which is to fight against inflation by reducing demand.
The US Federal Reserve (Fed) and many central banks around the world raised their key rates this week, moves that will inevitably cause a slowdown in the economy and therefore a contraction in corporate profits.
“While the market was positioned with the idea of a Fed pivot in 2023”, the message of the last meeting of the monetary policy committee, “is that we will have to live with high rates for another two years,” observes Vincent Manuel, Investment Director of Indosuez Wealth Management.
Panic in UK markets
In the United Kingdom, budget announcements from London that worried investors about the health of the country’s public finances caused the pound to plunge and rates to jump. The United Kingdom is also probably already in recession, according to the flash PMI index.
The country’s ten-year borrowing rate rose above 3.8%, at levels not seen since 2011, and the 5-year one jumped to 4%, after rising 50 basis points on the session, a record according to CMC Markets analyst Michael Hewson.
Sovereign bond yields were up on Friday across Europe and the United States. The phenomenon known as the inversion of the yield curve, which means that short-term rates are higher than long-term rates, and which is often considered to be a harbinger of an economic recession, continues to increase.
The gap between the US two-year rate and the ten-year rate has not been so high for more than 22 years.
Credit Suisse falls
The action of the bank Credit Suisse dropped 12.40% in the face of rumors which fuse around the projects of its new general manager to straighten the establishment, shaken by repeated scandals.
Continental in the sludge
Automotive supplier Continental fell 9.02% after it admitted to supplying automakers with dirty hoses for air conditioning systems for more than 15 years. The group explains that it has “drawn human and technical consequences” from this case, which has had no impact on road safety or the environment.