Biggest drop in the Paris Stock Exchange in nine months, after the ECB

by time news

The European Central Bank raised its key rates by 0.50 percentage point after a 0.75 percentage point hike in the previous two meetings.

The Paris Stock Exchange was heavily heckled Thursday by the much more aggressive tone than expected from the European Central Bank, which prepared the ground for future rate hikes in order to fight against persistent inflation. The star CAC 40 index fell 3.09%, or 208.02 points to end at 6522.77 points. This is the biggest decline since March 4, and the index falls to its lowest closing level since November 9.

Down in the morning, after the conclusions of the monetary policy meeting of the American Federal Reserve, the Parisian rating stalled with the measures announced by the European Central Bank then the press conference of its president Christine Lagarde. “We still have a long way to go», «we have to go further», «we are in a long game»: Christine Lagarde multiplied the formulas to convey the message of firmness from the ECB, which raised its key rates by 0.50 percentage point after an increase of 0.75 percentage point at the two previous meetings.

While investors were hoping for a pause in the rise in the ECB’s main key rate, they now expect “to a further increase of 0.5 percentage point at the next two meetings“, deciphers Nicolas Leprince, manager of Edmond de Rothschild AM. The Frankfurt institution has raised its inflation forecasts for the coming years and does not expect to reach its 2% target, even in 2025. The ECB has also kicked off the reduction of its bloated balance sheet by years of massive debt purchases to support the economy during periods of crisis.

Interest rates on sovereign debt have therefore soared: the French 10-year loan is remunerated at 2.58% against 2.42% on Wednesday. The increase is even more spectacular for Italy (4.13%, against 3.85% the day before). That’s not the only bad news investors have suffered: economic data in China or the United States has been below expectations, highlighting the risk of a recession.

In France, the economy is expected to plunge into the red in the fourth quarter before rebounding slightly in 2023, escaping recession despite the energy crisis which will continue to push inflation to a peak of 7% year on year, estimated INSEE on Thursday. The institute also revised its growth forecast for the whole of 2022 down slightly, to 2.5% (compared to 2.6% previously).

The fall in household consumption in China has weighed on luxury stocks, a heavyweight on the Parisian coast. Kering fell 5.57% to 495.50 euros, Hermès by 5.01% to 1,499 euros and LVMH by 3.55% to 701.60 euros. The technology sector, very sensitive to rate hikes, also sank: Worldline fell 6.77% to 38.14 euros, STMicroelectronics 4.88% to 35.41 euros. Atos also plunged 8.63% to 8.68 euros. Three values ​​of the CAC 40 progressed and only one significantly: Carrefour which took 1.35% to 15.82 euros, but the group had fallen sharply on Wednesday after a negative analyst rating.

SEE ALSO – Economy: Emmanuel Macron predicts a difficult year 2023 and a “recovery” in 2024

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