HOPE ON UKRAINE DRIVES STOCKS AND YIELDS UP
by Marc Angrand
PARIS (Archyde.com) – Wall Street is expected to rise sharply and European stock markets amplified their progress mid-session on Monday, with prevailing optimism over the outcome of negotiations between Russia and Ukraine encouraging a rebound in equities and a decline energy prices, while contributing to higher bond yields ahead of highly anticipated monetary policy meetings.
Futures contracts on the main New York indices signal an opening up 0.83% for the Dow Jones, 0.47% for the Standard & Poor’s 500 and 0.08% for the Nasdaq.
In Paris, the CAC 40 gained 1.19% to 6,335.01 points around 11:40 GMT. In London, the FTSE 100 takes 0.17% and in Frankfurt, the Dax advances by 2.17%.
The EuroStoxx 50 index is up 1.37%, the FTSEurofirst 300 0.97% and the Stoxx 600 0.85%.
Market sentiment is again dominated by optimism on the possibility of a negotiated settlement of the military conflict between Russia and Ukraine through diplomatic channels. Representatives of the two countries were to meet in the morning by videoconference but no information is available at this stage on any progress likely to lead to a ceasefire.
If the war in Ukraine – which Russia continues to present as a “special operation” – remains the main factor of volatility in world markets, investors are already positioning themselves in anticipation of the monetary policy decisions that the American Federal Reserve will announce on Wednesday, pending those of the Bank of England on Thursday and the Bank of Japan on Friday.
The Fed is expected to decide on a quarter-point rate hike which would mark, for many observers, the beginning of a long series of increases in the cost of money in order to curb inflation.
Fed Chairman Jerome “Powell called the Russian invasion of Ukraine a ‘game changer’ that could have unpredictable consequences,” said Eric Lafrenière, US equity manager at Richelieu Gestion.
“The central bank’s statement and the Fed Chairman’s comments on Wednesday … will give markets insight into how central bank officials view the Ukraine crisis and how it might affect their outlook and the path of interest rates.”
RATE
Without waiting for the Fed’s announcements, bond yields are once again up sharply, starting with those of the shorter maturities, which are the most sensitive to changes in key rates.
That of two-year US Treasury bills, at 1.822%, is thus moving to its highest since the summer of 2019 and its German equivalent has risen to its level of February 23 at -0.319%.
The ten-year American takes seven basis points to 2.0762%, the German more than six to 0.333%, the highest since November 2018.
VALUES IN EUROPE
This rebound in government bond yields is benefiting banking stocks on both sides of the Atlantic: Bank of America gained 2.3% in the first market advances on Wall Street and the sector’s European Stoxx index fell. yields 2.43%.
BNP Paribas gains 3.28%, Deutsche Bank 6.73% and ING 5.86%.
The best sector performance is however for the automobile compartment, which takes 3.54%, driven by Volkswagen (+5.25%), whose results and forecasts are reassuring.
Down, Sanofi sold 3.93% in response to the failure of a clinical trial for a treatment for breast cancer and EDF 1.74% after reviewing its estimate of the impact of government measures concerning the price of electricity.
CHANGES
The “dollar index”, which measures the fluctuations of the American currency against a basket of reference currencies, dropped 0.14% after approaching at the start of the day the highest of 22 months hit last Monday.
But the greenback remains well oriented against the yen thanks to expectations of a widening interest rate differential: it recorded a five-year high of 118.05 yen.
The euro, he regained some of the ground lost Thursday and Friday after the meeting of the European Central Bank (ECB), to 1.0953 dollars (+0.40%).
OIL
The oil market is accentuating its decline with the renewed optimism on the Russian-Ukrainian conflict, to which is added the fear that the resurgence of COVID-19 in China will weigh on demand.
Brent fell 4.64% to 107.44 dollars a barrel and US light crude (West Texas Intermediate, WTI) 5.52% to 103.29 dollars.
(Paris editorial office; +33 1 49 49 50 00)