CAC40: heaviness dominates, due to rates and geopolitics

(CercleFinance.com) - The Paris Bourse began the session down -1.
8%... then halved its decline before the US figures published at 2.30 p.m. (the CAC40 climbed back up to 7,975).
The heaviness is back with 90 minutes to go, with the CAC40 down -1.7% and flirting with 7,900, and the Euro-Stoxx50 down -1.5% to 4,910.

To better understand this "saloon door" sequence, we need to turn to Wall Street, where this morning's hoped-for rebound comes up short: the S&P500 barely maintains its balance (-0.1%) and the Nasdaq falls -0.2% in the wake of Tesla (-3.8%, with the stock falling back below the $500 billion capi mark).

Stock markets continue to suffer from the sharp rise in bond yields, which accelerated yesterday in response to better-than-expected US retail sales figures.
The yield on 10-year Treasuries, a barometer of market sentiment on the health of the US economy, has risen by a further +5pts to 4.678%, a peak of almost five months, while the 30-year has peaked at 4.800% and the 2-year is close to 5%.

In Europe, the yield on the 10-year German Bund, the benchmark for the eurozone, has risen by +7pts to around 2.501%, while our OATs are back above 3% (+7pts to 3.011%).
Against this backdrop, investors fear that high yields will prevent equities from responding positively to the current corporate earnings season.
The rise in the 30-year yield seems to have hit real estate hard:
the Commerce Department reported a 14.7% plunge in US housing starts in March compared with the previous month, to an annualized rate of 1,321,000, following a 12.7% jump in February.

U.S. building permits - intended to be a precursor of future housing starts - fell by 4.3% to 1,458,000 last month. Finally, housing completions fell by 13.5% to 1,469,000 (no "weather factor" to explain this decline).

US industrial production rose again by 0.4% in March (as in February), with a 3.1% jump in automobile production (vehicles and equipment).

Also according to the Federal Reserve, which publishes these figures, the capacity utilization rate in US industry rose by 0.2 points to 78.4% in March, a level 1.2 points below its long-term average (1972-2023).

In Europe, the ZEW index, which measures the sentiment of investors and financial analysts in Germany, reached a level in April not seen for two years, suggesting that Europe's leading economy is on the way out of its rut.

The Mannheim-based economic institute reports that its investor sentiment indicator rose to 42.9 this month, from 31.7 in March, the highest since March 2022.

The current conditions component, however, improved only slightly by 1.3 points, to -79.2, whereas analysts were anticipating a more pronounced recovery, to around -76.

The ZEW attributes the rise in its confidence index to the recovery of the global economy, with half of those questioned in the survey saying they expect a rebound in activity within six months.
The recent appreciation of the dollar against the euro is also leading survey participants to expect a rebound in German exports in the future, the organization explains.
But the IMF is more pessimistic about German and French growth in 2024 and 2025.
China's gross domestic product (GDP) rose by 5.3% year-on-year in the first quarter of 2024 (compared with +5.2% at the end of 2023), according to data released on Tuesday by the State Bureau of Statistics (BES), but retail sales fell from +5.5% to +3.3%, and production from +7% to +4.5%.

On the geopolitical front, NBC understands that an Israeli retaliation to Sunday morning's Iranian fire is imminent: this could be a major game-changer and add a good dose of stress to the markets.

The euro managed to recover 0.1% to $1.0635, gold gained over 1% to $2,370, Brent crude oil was little changed at around $89.5/$90, while WTI fell -0.3% to $85.1 on the NYMEX.

In the stock market, financial giants Morgan Stanley and Bank of America published their first-quarter accounts mid-day: BoA fell -3.6% following an increase in provisions for credit defaults ($1.3 billion vs. $0.935 billion a year ago), while Morgan Stanley reported higher-than-expected profits, buoyed by its investment banking business.

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.


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