The New York Stock Exchange opened sharply lower on Monday, tense by the persistence of inflation and the prospect of a possible tightening of monetary policy by the American central bank (Fed), which pushed up 10-year rates at an 11-year high. Around 2:05 p.m. GMT, the Dow Jones fell 1.88%, the Nasdaq index, with a strong technological composition, dropped 2.92% and the broader S&P 500 index lost 2.46%.
The latter, considered the most representative of the American market, is now in a “bear market”, which means that it has lost more than 20% compared to its historic peak in early January.
“Fear is taking over“commented Adam Sarhan, of 50 Park Investments.”We are approaching the end of the month and the quarter, and there is still no favorable news for the market.” “Last week, the market had an opportunity to regain momentum, but instead it fell once more. It shows how weak he is“, continued the manager.
Investors continued to digest the publication on Friday of the CPI price index, which showed that inflation, far from slowing as some predicted, accelerated in May, to register at 8.6% on a year, its highest level since December 1981. The figure, which had already plunged the indices on Friday, raised fears in New York that the Fed had an even heavier hand than expected so far in terms of monetary tightening .
Operators thus now estimate at nearly 40% the probability that the American central bank will raise its key rate by 0.75 percentage points at the end of its meeting, which is held on Tuesday and Wednesday, which would be a first since 1994. .
Tense climate
A sign of the nervousness, the VIX index, which measures market volatility, jumped nearly 20% from Friday’s close. “There’s a risk aversion movement going on“, explained, in a note Patrick O’Hare, of Briefing.com.
On Friday, Wall Street was also taken by surprise by the monthly survey from the University of Michigan, which showed that consumer confidence had fallen in June to its lowest level in 70 years of existence. “There is not much interest in risky assets“, most “there are not many for sovereign bonds either“, pointed out Patrick O’Hare. “They are sold in anticipation of higher rates and lasting inflation.“
US borrowing rates at 10-year high
At the same time, the 10-year US government bond rate hit its highest level in more than 11 years, lifted by accelerating inflation and the prospect of even stronger monetary tightening than expected. . Shortly following the opening of the stock market, the benchmark yield on US sovereign bonds rose to 3.29%, a peak since May 2011, once morest 3.15% on Friday.
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