European equity markets enjoyed a strong week, driven by the luxury, healthcare and technology sectors. Bond yields have fallen.
The equity markets managed to snatch an increase over the week. Their task was not easy, as the volatility was high from one Friday to the next. Investors have been torn between buying on the cheap after stocks have fallen sharply since the start of the year, and worries about the impact of higher interest rates on economic growth and corporate earnings.
On the bond and commodity markets, the balance tipped in favor of recession fearswhich drove down bond yields and commodity prices.
“Discussion of a recession has increased dramatically and has caused commodity prices to fall. It has also caused bonds to rally. That has certainly helped equity markets.”
“Discussion of a recession has increased dramatically and has caused commodity prices to fall. It has also caused an increase in bonds. This has certainly helped equity markets,” said Roger Jones, head of equities at asset manager London & Capital. “Cyclical stocks started to unscrew with PMIs and defensive stocks held up pretty well.”
The words of Jerome Powellthe chairman of the US Federal Reserve, during his hearing before Congress last Wednesday and Thursday, on his intention to continue raising rates until inflation is brought under control, also weighed on the morale of the investors.
Equity markets in Europe, however, benefited from the rebound in luxury, technology and health stocks this week. The Stoxx 600 gained 2.4%. Within the technology compartment, which gained 5.36%, rumors of mergers and acquisitions supported the shares.
The software publisher Temenos jumped 9.92% from one Friday to the next, while in the trading rooms, rumors are rife about an alliance between Abu Dhabi Investment Authority, the Canadian pension plan and the EQT fund for a buyout of the society. As for the values of luxury, Hermes won a 9.62% increase, thanks in particular to Barclays, which believes that the group has a competitive advantage on ESG (sustainable development) criteria compared to its peers, “a sensitive argument for its customers”.
Decline in raw materials
“Steel prices have yet to bottom out.”
On the other hand, the basic resources compartment tumbled by 4.92% in the wake of the fall in commodity prices. These have suffered from fears of recession, but also from the resumption of Covid-19 cases in China, which raises fears of an impact on demand. The price of copper lost more than 7% over the week and that of tin by 25%, a record.
The largest weekly declines among stocks in the sector were signed by steel producers ArcelorMittal (-9%) and Voestalpine (-13.74%) as JPMorgan lowered its recommendation on both stocks this week. “Steel prices have not bottomed out yet. Chinese inventories are near their highs and the macroeconomic backdrop is weak,” said JPMorgan analyst Luke Nelson. Aperamwhich produces specialty steel, fell 5.67% on Friday.
The energy sector also fell by 0.13%, while oil prices signed their second week of decline. the Brent barrel fell 0.03% to $113.15. “Growing recession fears appear to be prompting the elimination of speculative long positions in Brent and WTI, even as real-world energy tensions are more real than ever,” said Jeffrey Halley, analyst at Oanda.
Automobile stocks (-1.74%) also fell, despite a jump of 10.12% for Volvo Carswhile its Polestar subsidiary entered the Nasdaq on Friday by merging with Spac Gores Guggenheim.
On the other hand, the banking sector (+1.67%) managed to sign a slight increase over the week, despite the fall in bond yields. The ten-year German rate dropped 25 basis points in two sessions, and fell to 1.43%, its level two weeks ago. Its decline led to a sharp drop in German banks. Deutsche Bank dropped 5.13% and Commerzbank 6.74% from one Friday to another. Nothing says however that their performance will be repeated next week.