Rising interest rates are pushing European shares to their worst session in nine months

The scenario “longer higher‘ is making a comeback, for better or for worse. Faced with a pile-up of indicators of the soundness of the US economy, which risks fueling inflation and delaying interest rate cuts, investors are getting carried away in a global movement of risk aversionundermining the stock market rally that has been going on for six months.

This Tuesday, most stock indices closed with a sharp decline of around 1.5% for the Beautiful 20

and for the DAX

German and 1.4% for the CAC40

Parisian, while the Stoxx 600

fell by almost 1.6%. The pan-European barometer is thus completed the worst session since last Julyand falls below the symbolic level of 500 points.

These variations followed Wall Street’s the day before, where the S&P 500 and Nasdaq finished in bright red following the release of the United States Census Bureau’s retail index. In March these increased by 0.7% compared to the previous month (whose data was also revised upwards), almost three times the expected variation by economists.

At first glance, these figures, which underline the solidity of the US economy and the resilience of consumption, seem seem positivebecause they support growth and therefore business results.

On this topic, San Francisco Fed President Mary Daly reiterated that there was no such situation no rush among decision makers at the US central bank to ease monetary policy in the short term.

“The worst thing we can do now is act rashly when there is none,” she said Monday at an event at Stanford University. ‘We have to be sure of that don’t be too confident and not to believe that our projection, according to which inflation will continue to decline gradually, will become reality.”

Following these comments, US bond yields accelerated their rise, amplifying pressure on equity markets due to a rise in their risk premium. Last Tuesday, the interest rate on ten-year government bonds fluctuated around 4.65%. up 30 basis points in just one week reaching the highest point in almost six months.

The interest rate on two-year government bonds even rose short stretched to 5%, reflecting traders’ revised expectations for the Fed’s key interest rates. While at the beginning of the year the futures market pointed to six or even seven cuts in financing costs of 25 basis points, By the end of the year there would now be only two leftthe first won’t take place until September.

According to UBS strategists, who also predict two rate cuts in 2024, there is a possibility that the Fed will raise rates again from current levels. but already at the highest level in 23 years.

“If expansion remains solid and inflation remains at 2.5% or more, there would be a real risk that the monetary policy committee would start raising rates again early next year, to reach 6.5% by mid-2025,” they explained in a note.

In this “no landing” scenario (no landing of the US economy) mentioned by the Swiss asset manager, bond yields would rise again “significantly”, while the main stock indices risk a decline of 10 to 15%.

If this situation is reminiscent of last summer-autumnWhile this prospect of longer interest rates had caused the pan-European Stoxx 600 and the US S&P 500 to fall 10% between July and October, this time it appears to only affect the United States. while Europe is experiencing greater disinflation. In March, underlying inflation was just 2.9% in the eurozone, compared to 3.8% on the other side of the Atlantic.

The European Central Bank (ECB) could do that will therefore reduce rates from Juneas President Christine Lagarde suggested again last week, at least if wage growth continues to decline, which will have to be proven in May with the publication of a new indicator.

But if this easing were to bode well for borrowing costs on the Old Continent, he would also widen the gapalready by one percentage point, between the American and European policy rates.

Such a trend could put additional pressure on the euro the dollar has continued to rise since the beginning of the year and last week completed the strongest growth in a year and a half. The single currency has already lost 4% in value in 2024, reaching $1.062 at the close of European markets, the lowest level since early November last year.