Yesterday’s rebound promises to be inconsequential. The Paris Stock Exchange is expected to fall by more than 1%, the more “hawkish” than expected message from the US Federal Reserve having undermined hopes of a soft landing for the world’s largest economy. On Wall Street, the S&P 500 fell 1.7%, bringing its fall to more than 20% from its January record.
The US central bank announced on Wednesday evening a 75 basis point increase in the Fed funds rate and warned that it would continue its cycle of major monetary tightening at a more sustained pace in order to counter inflation. In its median projections on the evolution of interest rates, illustrated by a dot plot, the Fed forecasts a Fed funds rate of 4.4% at the end of the year, against a range of 3% to 3.25% currently. The median forecast is 4.6% for the end of 2023, compared to 3.8% estimated in June.
A more restrictive policy… for longer
In his post-meeting press conference, Jerome Powell dismissed the prospect of a more accommodative monetary policy (“pivot”) altogether, saying that the central bank is only at the “lowest level” of what she considers a restrictive policy, adding that there is no painless method against inflation. Driving the point home, he felt that ” the chances of a soft landing [de l’économie américaine] could decrease to the point that monetary policy should be tighter or tighter for longer ».
« The Fed may have stuck to the main scenario with a 75 basis point rate hike at its September meeting, but it still managed to deliver an offensive message with the accompanying projections, which imply a hike. additional 75 basis points in November and a move of 50 basis points in December, with more tightening to come in 2023deciphers Michael Pearce, at Capital Economics, the median projection for end-2023 is up to 4.6%, implying another 25 basis point rate hike early next year. »
The American 2-year above 4%
On the bond market, the yield on the American two-year loan settled above 4%, a level not seen since 2007. On the foreign exchange market, the American currency reached a new record, while the yen briefly rose above 145 to the dollar for the first time since 1998 as the Bank of Japan opted this morning to maintain an ultra-accommodative policy. The pound sterling continues to fall to 1.1243 dollars a few hours before the decision of the Bank of England, which should raise its repo rate by 50 basis points and announce new bond issues.
On the value side, Veolia Environment signed a unilateral purchase agreement by which Suez undertakes to acquire 100% of the share capital of Suez Recycling and Recovery UK Group Holdings, the former waste activities of Suez in the United Kingdom, for an amount of 2 billion pounds sterling (about 2.3 billion euros).
Among analyst ratings, JPMorgan downgraded Accor from “neutral” to “underweight” and reduced its target price from 35.50 to 21 euros. Stifel changed from “buy” to “hold” on Ubisoft and reduced its target price from 50 to 35 euros.