Stock markets fell sharply on Wednesday, anticipating an economic downturn 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 lost 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 gaining 0.60% around 1610 GMT, the S&P 500 up 1.16% and the heavily tech-tinted Nasdaq up 2.41%.
After tougher-than-expected statements by Federal Reserve Governor Lael Brainard, who is widely regarded as placating on Tuesday, markets are counting on even tougher-than-expected tightening from the US central bank. Lael Brainard assured that the Fed is readyact more decisivelyagainst inflation, in particular through the sale of financial assets, from its next money meeting in May.
Risks to the economy in case of monetary tightening
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 such a visionsays 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 the ongoing discussions among EU countries about new sanctions against Russia regarding coal and investments 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 gets too muchand that countries still resisting this measure do not succumb, especially ifnew evidence of Russian atrocitiesarise. 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 on Wednesday that the EU must “Sooner or later» impose sanctions on Russian oil and gas.
Rising interest rates in the bond and technology stock market
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.