China prioritizes stocks, inflation increases yields

China prioritizes stocks, inflation increases yields



CHINA INCREASES SHARES, INFLATION INCREASES REVENUES

(Reuters) – European stocks ended higher on Monday as confirmation of the lifting of the blockade in Shanghai prolonged the recovery in risk appetite, while the strength of inflation in the eurozone supported the growth of bond yields.

However, trading volumes have been reduced by the absence of most US investors, making the day a “Memorial Day” in the United States.

In Paris, CAC 40 gained 0.72% (46.64 points) to 6,562.39 points, the best closing since April 22. In London, the FTSE 100 strengthened by 0.19% and in Frankfurt by Dax by 0.79%.

The EuroStoxx 50 index ended at 0.86%, FTSEurofirst 300 0.58% and Stoxx 600 0.59%.

It thus reduces its decline from the beginning of May to 0.85%, while the MSCI world index now shows a positive monthly performance.

The Shanghai authorities have confirmed that the quarantine imposed on the city’s population for two months will be lifted on Wednesday in an effort to curb the recurrence of the COVID-19 epidemic, which should speed up the return to normal daily life as an economic activity.

The report culminates in outgoing concerns about rising interest rates by the US Federal Reserve after indicators suggest that inflation in the US may have peaked.

However, fears of a sharp rise in consumer prices have not disappeared, as shown by the release of the first inflation data in Spain and Germany in May, which in both cases reached 8.7% per year.

RATE

These figures, which are likely to relaunch the European Central Bank’s (ECB) debate on the appropriateness of raising rates by half a point in July, have supported a sharp rise in euro area bond yields: German 10-year bond yields. The Bund gained more than eight basis points at 1.054%, the most since May 18, its French equivalent eight points at 1.564% and the Spanish almost ten points at 2.123%.

Money markets currently expect the ECB deposit rate to increase by 110 basis points by the end of the year.

“It would not be sensible to rule out a rate increase of 50 basis points in July, but it is clear that there is no consensus in the Board of Governors on an increase of this magnitude,” said Chris Attfield, European rate strategist at HSBC. .

CHANGES

The acceleration in inflation also benefits the euro, which strengthened against the dollar by 0.48% to 1.0778, which is the highest since 25 April.

The dollar, on a larger scale, is suffering from renewed investor interest in riskier assets: it fell 0.34% compared to the benchmark basket.

The US currency, which has fallen by almost 1.5% since the beginning of the month, is heading for its first negative monthly performance since February.

VALUES

The strong growth of the US Nasdaq on Friday and the prospect of a continuing recovery on Tuesday benefited European technology stocks, whose Stoxx index closed with a gain of 1.99%.

The prospect of a complete lifting of health restrictions in China has also favored luxury equities, a sector very exposed to the Chinese market: in Paris, Hermès, Kering and LVMH gained between 2.5% and 4%.

In Frankfurt, Siemens grew by 2.43% after winning a € 8.1 billion contract to build high-speed rail links in Egypt.

Sanofi sold 1.91% after the US Food and Drug Administration (FDA) postponed the start of testing for the over-the-counter product Cialis, a drug for erectile dysfunction.

OIL

The price per barrel of oil remains on the rise, despite the European Union’s apparent difficulties in reaching a compromise to ban Russian oil imports.

Brent crude rose 1.2% to $ 120.86 a barrel after beating $ 120 for the first time since March 25 and West Texas Intermediate (WTI) gained 1.03% to $ 116.26.

(Written by Marc Angrand, with Stefan Rebaud, edited by Jean-Michel Bélot)

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