Published January 19, 2023, 5:56 pmUpdated January 19, 2023 at 18:36
The Paris Stock Exchange did something it had, until then, very rarely done since the beginning of the year: it crashed. The Cac 40, which fell below the 7,000 mark, closed Thursday’s session down (only the third time in almost three weeks) by 1.86%, at 6,951.87 points, in a large trading volume, higher than an average of over 4 billion euro.
Central bankers, exasperated by some by the big stock market rebound since the start of the year, signaled the end of the rally. This morning, the Dutch governor of the ECB, Klaas Knot, told the American television channel CNBC from Davos that: “ The kind of market movement that I have seen over the last couple of weeks is not entirely welcome. […] I don’t think it is compatible with a rapid return of inflation to around 2%. European hawks aren’t the only ones speaking out after the World Economic Forum. Yesterday St. Louis Fed Chair James Bullard and Cleveland’s Loretta Mester reiterated, as investors turned a deaf ear, that US rates would rise more than 5% this year.
In this context, bad economic indicators (which could, according to investors, encourage central bankers to stop monetary tightening) are no longer considered good news by the Stock Exchange which, finally, must review its copy and re-analyse in particular, under a new day, the drop in US retail sales in December (-1.1%, its biggest monthly decline last year, after another 1% in November, revised from -0.6%). Industrial production was also announced to contract stronger than expected yesterday in the world’s largest economy in December. Today’s daily stats showed a decline in the Philadelphia area activity index (-8.9 points) in January.
A still tight job market in the United States
US activity tightens, rekindling recession fears, but the job market (aside from the “tech” sector layoffs) continues to do well, which is a headache for the US central bank (Fed), determined to calm the overheating economy to overcome inflation which, it is true, is slowing down, but remains three times higher than its 2% target.
The latest weekly jobless claims data released this afternoon showed a decline of 15,000, to 190,000, the lowest in fifteen weeks (September), as economists expected an increase.
Susan Collins, the chairwoman of the Boston Fed, yet not one of the hawkish camp of the US central bank, said, also from Davos, that the Federal Reserve will probably have to raise rates to raise them “ just above by 5% and keep them there for a while.
Lagarde advises fellows to “revise” their expectations
For her part, Christine Lagarde, head of the European Central Bank, who was also present at the Economic Forum, advised “ market participants to review their positions “, contrary to what the ECB stated clearly in December (to everyone’s surprise), investors took sides in believing that the Frankfurt institute will ultimately not raise its rates by 50 basis points at the end of the next two or even three meetings.The ECB will continue to raise interest rates and leave them in tightening territory for as long as it takes to bring inflation back towards the medium-term target of 2%, he said.
Yesterday the Cac 40, fueled since the beginning of the year by the fall in gas prices and by the multiplication of data indicating a slowdown in inflation, had reached a new high for almost a year at 7,115.20 points, less than 4% from its all-time high on January 5, 2022, when the index went up to 7,384.86 points in the session. At that moment yesterday, the flagship index of the Paris Stock Exchange showed a 10% rebound since the beginning of the year.