Fears of an economic downturn in Europe and the US weigh on stock markets

Stock markets fell sharply on Wednesday, anticipating an economic slowdown in the US due to monetary tightening, as well as in Europe if an embargo on Russian gas is announced.

European stock markets, which increased their losses during the day, closed sharply lower: Paris shed 2.21%, Frankfurt – 1.89%, Milan – 2.06%. The French and Italian markets even briefly fell by 3%. London, for its part, lost 0.34%.

The New York Stock Exchange also fell, with the Dow Jones up 0.60% around 1610 GMT, the S&P 500 up 1.16% and the heavily tech-colored Nasdaq up 2.41%.

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

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

This prospect of aggressive monetary tightening has Deutsche Bank analysts wary of an economic slowdown in the United States towards the end of the year. “And they are not the only ones, many economists have this vision,” says Philip Cohen, portfolio manager at Kiplink Finance.

The minutes of the institution’s latest monetary policy committee meeting, expected after European markets close, will allow market participants to learn more.

From the side of the European Central Bank (ECB), an executive council member warned on Wednesday that tightening monetary policy in the euro area could dampen already weakened economic activity.

European operators are all the more concerned about ongoing discussions among EU countries about new sanctions against Russia regarding coal and investment in the country. The UK and the US have announced new economic and financial measures.

Markets are primarily concerned about the cessation of imports of Russian gas and oil, “it would be unbearable for the economy,” according to Philip Cohen.

But for Michael Hewson, “it’s only a matter of time before the pressure becomes too much” and that countries that still resist the measure will give in, especially if “new evidence of atrocities committed by the Russians” emerges. Russia is accused of brutal treatment of the civilian population, in particular, in the city of Bucha near Kiev.

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

Rising rates and falling technology

In the bond market, interest rates reacted to this whole context by rising: the interest rate on a 10-year US loan was 2.599%, which is the highest since 2019. European interest rates also tightened significantly, with a 10-year German loan rate of 0.644%.

Stocks of technology companies that need low rates to finance their growth and evaluate their long-term earnings have been falling.

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

Semiconductor manufacturers have been hit even harder by international tensions and restrictive measures in China. Infineon fell by 3.78%, STMicroelectronics – by 2.77%. Nvidia lost 6.12%, AMD – 3.39%.

The ruble erases its losses

Oil prices fell sharply after a significant and unexpected rise in US crude oil inventories.

A barrel of WTI due in May again fell below $100: shedding 2.88% to $98.98. North Sea Brent crude, the European benchmark, for May delivery fell 2.20% to $104.29 around 1600 GMT.

In the foreign exchange market, the ruble temporarily returned to its February 23 close of 81.16 rubles to the dollar before Russia’s invasion of Ukraine. Around 16:00 GMT, it traded at 82.1933 rubles per dollar.

The euro remained weak (+0.07% to $1.0912) against the US dollar, helped by Fed policy this week.

Bitcoin fell 3.62% to $44,215.

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