CAC 40: rising yields sow unrest

(CercleFinance.com) - The Paris Bourse is set to open lower on Tuesday morning, with investors concerned by the sharp rise in bond yields, which is often the cause of correction movements on equity markets.


At around 8:15 a.m., the 'future' contract on the CAC 40 index - April delivery - was trading at around 7942.5 points, down 105 points, suggesting an opening below the important 8000-point support level.

The deterioration in bond markets worsened sharply yesterday in reaction to US retail sales figures that came in above expectations.

This solid statistic, added to other better-than-expected indicators, further distances the prospect of a forthcoming Fed rate cut, the main driver of the market rally since the beginning of the year.

The yield on 10-year Treasuries, a barometer of market sentiment on the health of the US economy, hit an almost five-month high of over 4.65% on Monday.

The contagion effect has spread to Europe, where the yield on the 10-year German Bund, the benchmark for the eurozone, is hovering around 2.44%, raising fears of tighter financial conditions.

Against this backdrop, investors fear that high yields will prevent equities from responding positively to the current corporate earnings season.

Financial giants Morgan Stanley and Bank of America are due to publish their first-quarter accounts mid-day on Wall Street, as is healthcare group Johnson & Johnson.

On the Old Continent, Ericsson this morning reported higher profits for the first three months of the year, despite a contraction in sales over the period.

According to Berenberg's strategists, the current economic uncertainties militate in favor of a "pause" in the equity markets, leading them to favor safer assets such as gold, energy and defensive stocks.

The CBOE index, which measures the volatility of the S&P 500 and is often dubbed the "fear index", ended last night at 19.2, its highest level since last November.

Apart from corporate results, market operators will be paying close attention today to Germany's ZEW business climate index, followed by the latest US housing figures.

The good news is that China's gross domestic product (GDP) rose by 5.3% year-on-year in the first quarter of 2024, according to data released on Tuesday by the State Bureau of Statistics (BES).

But Commerzbank's economists point out that activity slowed somewhat in March, suggesting that the recovery seen at the start of the year thanks to fiscal support and public investment may be running out of steam.

'The government must therefore continue with its spending plan for this year', deduces the German bank.

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