Exchange: worst week in Paris for three years – Echoes

Exchange: worst week in Paris for three years – Echoes

The CAC 40 index plunged 6.1% in five sessions. Like other European exchanges, Paris succumbs to falling oil prices and the risk of deflation in the euro area

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The European markets have just experienced their worst week in three years. A steady decline, with no real jerk. The Euro Stoxx lost over 5.4% in five days, while the London Stock Exchange yields 5.5%, 6.1% that of Madrid and Milan 6.5%. The Paris Bourse has not done much better with a decline of 6.1% in 5 sessions. It is its biggest drop since the -6.31% recorded at the same time there three years. A higher decline than that recorded in the correction of October …

In Europe, the “blues chips” French were among the most abused in the period with 5 companies in the Top 10 biggest weekly declines in the Euro Stoxx Airbus Group (-18.7%), Saint Gobain (-11.8%), Societe Generale (-9%), Total (-7.5%) and crossroads (-7.2%).

Deflation cause depression stock market

Since the beginning of the week, markets are sinking into depression, particularly undermined by bad news on European growth, which continues to stagnate. The latest example, the announcement Friday in an increase of only 0.1% of industrial production in the euro area, below expectations.

Added to this is an increase in the risk of deflation in the first quarter of this year. Peter Praet, Executive Board Member of the European Central Bank warned that “ the strength of the oil shock could cause temporary fall in inflation in negative territory in the euro area .” The drop of oil otherwise neutralize the impact of the decline of the euro. The chief economist of the ECB is not the only one worried. Thus the company Fitch Rating admitted Friday that “ deflation remains a serious risk, although this is not our central scenario, and could lead to a slowdown in demand, a fall in asset values ​​and a increased debt burden . ” Although analysts Aurel BGC find that “ This is not necessarily bad deflation because it is concentrated on energy prices, but it’s still a risk to all price components “.

Still, Gilles Moëc, chief economist at Bank of America-Merrill Lynch warns against any complacency about the impact of oil on growth in Europe ” The core inflation remains low, the macroeconomic situation deteriorates and the measures already announced by the central bank show a large ignition delay, we can not wait to be in recession or deflation proven to act more . “

record low rate for France

Meanwhile, oil stocks and energy weigh on the trend and also included prominently in the ranking of the largest declines of the week including Repsol and Eni declined by more than 9.5%, more than 9% RWE. In this context, investors will return to the bond markets, which record a new record. The yields on French and German yields hit a low of 0.891% and 0.623% respectively. “ The behavior of valid contracts, for now, the diagnosis of a sustainable world confronted with the effects of global deflationary pressures ,” says Didier Saint-George at Carmignac Gestion. For him, Europe is still “ at the beginning of his long walk .”

With an aggravating factor for the stock market: Greece, whose index plunged 20% in 5 days, because of the surprise announcement of the holding of presidential elections in December instead of February 2015. This sounds like a return of political risk with the fear of questioning of austerity measures with the rise of anti-European movement Syriza. The threat of Prime Minister Antonis Samaras triggering a “ new crisis that could easily contaminate Europe ” furiously back bad memories for investors and added to the bad atmosphere in the markets. “ How to prevent investors, especially outside Europe, to think that the presence of Greece in the euro area is at stake if ever Siriya tops? It’s the return of sovereign risk, which was not expected until February initially “relate analysts Aurel BGC recalling the tendency to overreact markets.

Add to that the numbers that disappoint in China (up 7.2% year on year industrial production, lower than expected) and you get an explosive cocktail that pushes managers to take the profits recorded in recent weeks since correction of October.

Positive 2015

The amazing thing is that many managers continue to be positive on European values 2015. The decline of the euro, the lowest rates are all good news for businesses, as indeed Fitch Ratings says. “ The gradual recovery in corporate margins and cash generation should lead to an improvement in corporate ratings in EMEA in 2015, helping to maintain a stable outlook in the region. We rely on improved market conditions in 2015, in the wake of the gradual recovery that started in mid-2013 . ” But it will probably take a real recovery in corporate earnings, after a third quarter of good quality, and an upward revision of the forecasts of analysts, which would be a first for four years, for the European markets come to finally take Wheel Wall Street.