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The bright red CAC 40, China and the Fed stoke the risk of recession

European stock markets looked gray on Monday, May 9, weighed down in particular by a cocktail of headwinds for growth. The European indices again ended in a sharp decline: the CAC40 lost 2.75%, Frankfurt 2.15%, London 2.32% and Milan 2.74%. Friday, May 6, European markets had already lost around 1.5%. Compared to its peak in early January, the Parisian rating even lost 20% of its value. After several weeks of losses, the New York Stock Exchange continued to give ground: the Dow Jones lost 1.44%, the S&P 500 2.13% and the Nasdaq index of technology companies fell 2.75% around 4:10 p.m. GMT . Oil prices fell by around 5%, in the face of fears of a fall in demand for black gold with the health measures taken in China to fight against Covid-19. Around 4:05 p.m. GMT, the barrel of Brent, reference oil in Europe, for July due, lost 4.79% to 107.03 dollars, and that of American WTI for delivery in June dropped 5.10% to 104.19 dollars.

Chinese authorities extended restrictions to Beijing on Monday, where millions of residents were working from home, and Shanghai remains in lockdown. “The Chinese authorities’ stubborn pursuit of the zero Covid policy raises concerns about the crippling effect it will have on the Chinese economy in the months ahead,” said CMC Markets analyst Michael Hewson. He points out that “problems in supply chains” persist in this context and could have “disastrous consequences on growth prospects”. The effects of these health measures are already being felt: exports from China grew in April at their weakest pace in almost two years (+3.9%), with the containment of Shanghai which heavily penalizes activity economic.

Raw materials are on the rise

In addition, the conflict in Ukraine, which is driving up commodity prices, presents an additional risk for the economy. Russian President Vladimir Putin remained on his positions Monday, reaffirming that his army was fighting in Ukraine to defend “the fatherland” against an “unacceptable threat”. Western countries continue to harden their position: the G7 countries have made a commitment to wean themselves off Russian oil, without giving a precise timetable. Regarding the European embargo, the President of the European Commission is going to Hungary on Monday, where President Viktor Orban is blocking the proposed embargo on Russian oil. Bonds acclaimed, bitcoin set aside
Faced with this more than gloomy context, investors preferred to turn to less risky assets such as the dollar or bonds, whose yields fell accordingly.

Bond rates had earlier reached levels not seen in years, pushed by the rise in key rates from central banks, which are trying to curb record inflation. The US 10-year rate stood at 3.09% around 4:05 p.m. GMT, after hitting 3.20%, its highest since November 2018. Bitcoin, an asset deemed risky, fell 3.37% to $33,090, after a decline of more than 8% in three days. The dollar, a safe haven for investors, gained 0.12% against the euro, to 1.0557 dollars for one euro, around 4:05 p.m. GMT. The high level of interest rates weighed on technology stocks, which need low rates to finance their growth.

In New York, giants such as Meta (-2.61%), Amazon (-3.28%) or Microsoft (-3.01%) fell. In Europe, Dassault Systèmes fell 4.44%, Deliveroo 11.74%, Delivery Hero 13.26%. On the semiconductor side, Infineon lost 6.03%, after slightly increasing its annual forecast, STMicroelectronics lost 3.93%, ASML 7.28% and AMD lost 7.24%. Uber fell 7.10%. Its boss Dara Khosrowshahi announced significant cost reductions to stem the tumble of the title on the New York Stock Exchange, in an email sent Sunday to employees of the company and published Monday by CNBC.

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