CAC 40, Wall Street … what are the risks to the stock market?

The stock market has recently been on the slide between rising investor fears and “cheap” purchases after the recession. There are a lot of uncertainties in the world’s securities markets now. First, although GDP growth in France and the euro area is expected to be around 0.2% in the second quarter, after the stability of the French economy in the first quarter due to, inter alia, Covid restrictions, “consumption is likely to decline in the first quarter and growth inflation in the second quarter is an additional risk, ”the expert said.

I must say that the surge in inflation is testing the confidence of households and their purchasing power, “even if eurozone members seek to mitigate the shock, for example, by setting the energy of checks,” said Natalie Benatia, who also believes that economic performance between European countries. should be quite contrasting. After a sluggish first half, the second “could be better, according to our central scenario, in particular due to the expected recovery of the tourism sector”, which has so far suffered from Covid-19, says Natalia Benatia.

The second risk is a bigger-than-expected shock to German industry and economy because of the danger of Covid-19 in China and the aftermath of the war in Ukraine. “Zero Covid’s policy in China may continue due to a smaller vaccinated population and a less effective vaccine. Tough policies that lead to new bottlenecks affecting, in particular, the German economy (one of the most open economies in the euro area, and quite prone to the influence of the developing world, editor’s note). And with the war in Ukraine, in the event of an embargo on Russian gas imports, German industry would bear the full burden of this new shock, “said the economist.

It will also be necessary to closely monitor the trajectory of monetary policy of the Fed and the ECB, US central banks and the euro area. The Fed has clearly strengthened its tone in recent months in the face of rapid inflation. In early April, Lael Brainard, a member of which was usually a “blue” (supporter of flexible monetary policy), turned into a “hawk” (in favor of more restrictive monetary policy), – said Natalie Benatia, while Fed President Jerome Powell noted that he would do everything to solve the problem of inflation. “No one should doubt that we are determined to reduce inflation,” said Jerome Powell, who now says he wants to see “clear and convincing” signs of declining consumer prices.

However, when the central bank wants to significantly reduce inflation, there is debate about its ability to do so without leading the economy into recession. At present, BNP Paribas Asset Management does not expect a recession in its central scenario, but expects growth in the US to fall below 2% in 2023, ie below its growth potential (approximately 2.0% to 2.5%). This week, Jerome Powell “used that expression soft landingwhich indicates that landing (economy) may be turbulent, not a soft landing, “- says Natalia Benatia, for whom, if the peak of inflation has passed or is to come, it should be a priori return slower than expected.

In the eurozone, however, the ECB is “not in the same situation as the Fed,” and wage pressures are evident in the United States, but not in a monetary union. “So far in Germany, salary requirements have been reasonable. However, the ECB has stated that it will monitor the evolution of wages and inflation expectations in the eurozone, “while the hawks are gradually gaining an advantage over monetary authorities,” said Natalia Benatia. ECB President Christine Lagarde has already indicated that the purchase of securities will be completed in June, and the key rate will be raised for the first time in July.

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